Mortgage-Related Charges Dent Bank of America Profit
Bank of America reported quarterly earnings that topped Wall Street's estimates on Thursday, but profit fell from a year ago as it took more charges to clean up mortgage-related problems.
After the bank's earnings announcement, Bank of America stock rose in pre-market trading. (Click here to see how Bank of America stock is trading before the bell following the report.)
The company posted fourth-quarter earnings excluding items of $700 million, or 3 cents per share, down from $2 billion, or 15 cents a share in the year-earlier period.
Bank of America also reported revenue of $22.6 billion.
Analysts had expected the company to report earnings excluding items of 2 cents a share on $21.03 billion in revenue, according to a consensus estimate from Thomson Reuters.
Bank of America said on Jan. 7 its fourth-quarter results would include a litany of one-time items, including more than $5 billion in mortgage-related charges, a $1.3 billion tax benefit, and a $700 million charge related to the value of its debt.
Most of the bank's mortgage troubles stem from its 2008 purchase of subprime lender Countrywide Financial. So far it has taken more than $40 billion in losses on legal settlements and requests to buy back soured loans that it sold to investors during the housing boom.
The bank's results were boosted by a lower provision for bad loans, which fell to $2.2 billion from $2.9 billion a year ago. Bank of America also saw investment banking fees climb 58 percent from a year ago.
To boost profits, Bank of America in 2011 launched a broad cost-cutting program which aims to eliminate $8 billion in annual expenses by mid-2015. The bank's expenses declined to $18.4 billion in the quarter from $18.9 billion a year ago, excluding goodwill impairment charges in the year-ago period.
Bank of America's charges included $2.5 billion for its share of an $8.5 billion settlement with large banks over foreclosures and $2.7 billion for agreements with Fannie Mae over soured loans the bank sold the finance company and for delays in processing foreclosures.
Bank of America said it began slashing employees in its mortgage servicing unit, which helps borrowers behind on their payments, and said it would cut more jobs as delinquencies decreased. The mortgage servicing unit's total employees fell by 3,000, or 7 percent, from the third quarter, and the bank also shed 6,000 — or 35 percent — of its contractors.
"We put a lot of risk behind us in 2012," Chief Financial Officer Bruce Thompson said on a conference call with reporters.
—Reuters contributed to this article.