Bank of America quarterly profit drops 43 percent

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Bank of America reported a 43 percent drop in second-quarter profit, falling short of Wall Street estimates, as revenue from mortgages fell and litigation costs soared.

The second-largest U.S. bank said on Wednesday that earnings attributable to shareholders fell to $2.04 billion, or 19 cents per share, in the three months ended June 30 from $3.58 billion, or 32 cents per share, a year earlier.

Analysts on average had expected earnings of 29 cents per share, according Thomson Reuters I/B/E/S.

Bank of America's shares, which have barely moved this year, were down 1 percent at $15.66 in premarket trading.

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Litigation expenses surged to $4 billion in the latest quarter from $471 million a year earlier, but were less than the $6 billion recorded in the first quarter.

The bank, which has already agreed to pay more than $50 billion to settle disputes stemming from the financial crisis, has been negotiating a multibillion dollar settlement with the Department of Justice to resolve investigations into the sale of mortgage-backed bonds.

Read More US settles with Citigroup over subprime mortgages

Bank of America has offered to settle for about $12 billion, while the Justice Department has suggested $17 billion, sources familiar with the matter have said.

BofA settlement pending

Another settlement

In the latest settlement, Bank of America said on Wednesday it would pay $650 million to American International Group to resolve litigation involving mortgage-securities.

Read More BofA could pay at least $12B to settle US probes: Report

Excluding accounting adjustments, the bank's revenue fell to $21.7 billion from $22.7 billion in the same period of 2013. Operating expenses rose to $18.54 billion from $16.1 billion.

The bank posted a loss of $2.8 billion in its consumer real estate services business, up from a loss of $930 million a year earlier, again largely due to a rise in litigation expenses.

Home loans and home equity loans fell by almost half compared with the year-earlier quarter, to $13.7 billion.

Read More Bank of America to suspend previously announced capital plans

First-mortgage originations slid 59 percent as refinancing demand weakened.

Still, CEO Brian Moynihan struck an upbeat note.

"The economy continues to strengthen...Consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity," he said.

What's behind strong US bank earnings?

One bright spot was the bank's fixed-income, currencies and commodities trading business. Compared with the year-earlier quarter, revenue in the business rose 5 percent to $2.4 billion, excluding an accounting adjustment.

JPMorgan Chase & Co reported a 15 percent drop in profit from that business, while Citigroup reported a 12 percent decline.

Investment banking fees also rose, to $1.63 billion from $1.56 billion, as stock markets hit record highs.

Read More Big banks crush earnings expectations. But how?

The Federal Reserve suspended Bank of America's plan to pay a higher dividend and buy back more shares after the bank said in April that it had discovered an error resulting in the overstatement of its capital by $4 billion

The Fed is now considering a revised plan.

By Reuters