Bank of America reports first quarterly loss since 2011 on lofty legal bill

Revenue improved in many of the bank’s major businesses, but the results were overshadowed by its bigger-than-expected legal costs

Bank of America reported an unexpected first-quarter loss yesterday after it took a $6 billion charge to cover litigation expenses, a figure that far exceeded the legal settlements the second largest US bank has announced recently.

Revenue improved in many of the bank’s major businesses, but the results were overshadowed by its bigger-than-expected legal costs. The bank had previously said that a settlement would cut into its earnings by $3.7 billion before taxes.

The extra litigation expenses came from setting aside money to cover future legal settlements tied to previously disclosed mortgage-related matters, chief financial officer Bruce Thompson told reporters.

The bank’s setting aside more money does not mean a settlement is imminent, Mr Thompson told analysts on a separate conference call.

READ MORE

The bank’s shares fell 2.1 per cent to $16.04 on the New York Stock Exchange shortly after midday. Rivals JPMorgan Chase and Citigroup had made profits for the quarter.

Bank of America's quarterly loss, its first since the second quarter of 2011, underscores how much the bank is still suffering from its disastrous acquisition in 2008 of Countrywide Financial at the height of the financial crisis. That deal was a key factor in the more than $50 billion of legal expenses the bank has logged since the financial crisis.

In March, Bank of America agreed to a $9.3 billion settlement to resolve claims that Countrywide and other Bank of America entities overstated the quality of the mortgages they sold to Fannie Mae and Freddie Mac between 2005 and 2007. The bank had previously set aside funds to cover much of the settlement with the two agencies, but not all of it.

There was positive news for the bank in the results. Income rose in its wealth management, trading, and retail banking businesses, and it wrote off fewer bad loans. It cut staff levels. – (Reuters)