04/15/2011 08:00 am ET | Updated Jun 15, 2011

Bank Of America's Profits Down 37.5 Percent From One Year Ago

CHARLOTTE, North Carolina (Joe Rauch) - Bank of America Corp posted an unexpectedly sharp drop in first-quarter profit as higher expenses from delayed home foreclosures weighed on its mortgage business.

The largest U.S. bank lost more than $2.39 billion in its home loan business as revenue fell and expenses rose. The foreclosure mess that began in the fourth quarter of 2010, with borrowers accusing major banks of repossessing homes without having the right paperwork in place, was a key source of higher costs in the quarter.

The bank also announced a new chief financial officer.

The first-quarter results give some inkling of why the Federal Reserve told the bank in March to rein in its plans to boost dividends, even as competitors were authorized to hike their payouts.

"Bank of America is further behind. And the reason they're further behind is because of what's going on with the mortgage business," said Ben Wallace, analyst at Grimes & Co, with $1 billion under management.

The bank said in March that it did not expect its mortgage business to return to normal earnings until 2014 or later, while most of its other businesses are seen recovering by 2013.

Bank of America shares were down 1 percent to $12.99 in morning trading. The shares fell 1.5 percent after JPMorgan Chase & Co's results on Wednesday showed the pressure facing consumer lending businesses.

JPMorgan, the second-largest U.S. bank, said it suffered extraordinarily high losses on mortgage-related issues in the first quarter. "Unfortunately, these losses will continue for awhile," said JPMorgan Chief Executive Jamie Dimon.

Bank of America did manage to earn $2 billion in the latest quarter, its first profit since the second quarter of 2010. It faced big mortgage and card-related losses throughout the second half of last year.

Its Merrill Lynch brokerage business provided a bright spot in the quarter, reporting sharply higher revenue and client assets as well as a net increase of nearly 200 financial advisers.

Bank of America, built through a series of acquisitions over decades, made an ill-fated purchase in 2008 when it bought mortgage lender Countrywide Financial Corp as the financial crisis was intensifying. The purchase gave Bank of America more subprime mortgages, home equity loans, and other assets that have generated big losses. The bank needed two government rescues during the financial crisis; it has repaid the money it received.

Chief Executive Brian Moynihan, who took the helm in early 2010, is trying to fix the bank by cutting costs and selling more products to retail customers, but he faces as uphill battle.

Bank of America's results are closely tied to the health of U.S. consumers, who have been reducing their debt as they wrestle with stagnant wages and high unemployment. The Charlotte, North Carolina-based bank does business with one of every two U.S. households.

The bank's loan book fell 8.5 percent in the first quarter from the fourth quarter, to $932.43 billion, due mainly to a decline in consumer loans.

Moynihan has put new people in charge of many areas of the bank, but changes are already underway in the executive suite. On Friday the bank said Bruce Thompson, its chief risk officer, will become chief financial officer by the end of the second quarter. The current CFO, Charles "Chuck" Noski, will become vice chairman of Bank of America.

Noski took over as CFO in May 2010 and lives in California. He had planned to move to Charlotte this summer. A serious family illness prevented the move, the bank said.

It said it had settled a mortgage-related lawsuit with Assured Guaranty, a bond insurer, in an agreement whose cost is estimated to be $1.6 billion.

On a conference call with investors, Moynihan said the bank does not know what the process will be to resubmit its dividend hike request with regulators.

Bank of America posted first-quarter net income of $2.0 billion, or 17 cents per share, down from $3.2 billion, or 28 cents per share, in the same quarter a year ago.

Analysts on average had forecast earnings of 27 cents a share, according to Thomson Reuters I/B/E/S.
The loss in its residential mortgage unit of more than $2.39 billion compared with a loss of $2.07 billion a year earlier.

Overall expenses rose in the mortgage business, but write-offs of bad loans actually fell: Net charge-offs of residential mortgages were $905 million, compared with $1.07 billion a year earlier.

(Reporting by Joe Rauch, additional reporting by Dan Wilchins in New York and Dominic Lau in London; editing by John Wallace)

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