Bloomberg News

BofA Mortgages Fuel Second-Quarter Profit Drop: Timeline

July 16, 2014

Bank of America Corp. (BAC:US) said profit tumbled 43 percent in the second quarter as mortgage disputes continue to dog Brian T. Moynihan in his fifth year as chief executive officer.

Below is a timeline showing how legal costs swelled, defying the company’s predictions, as investors, insurers and the U.S. demanded the company repurchase shoddy loans.

Jan. 1, 2010: Moynihan becomes CEO, replacing Kenneth D. Lewis, who had underestimated the depth of the housing slump and bought subprime home lender Countrywide Financial Corp. in 2008.

Feb. 26, 2010: Bank of America says the cost of resolving mortgage disputes rose to $1.9 billion in 2009 from $246 million in 2008 on “deterioration in the economy and housing markets combined with a higher rate of repurchase or similar requests.”

Oct. 18, 2010: A bondholder group including Pacific Investment Management Co. and BlackRock Inc. (BLK:US) sends a letter demanding the bank buy back mortgages packaged into $47 billion of bonds.

Oct. 19, 2010: The bank announces an $872 million third-quarter provision to resolve claims. That compares with $455 million a year earlier, $516 million in the fourth quarter of 2009, $526 million in the first quarter of 2010 and $1.25 billion in the second. “It’s a half billion, half billion, half billion,” Moynihan says. “Those are the kinds of numbers that would be more recurring.”

Nov. 16, 2010: Moynihan says the bank is waging “hand-to-hand combat” over investor demands that the firm buy back mortgages.

Dec. 7, 2010: Moynihan says Bank of America will increase its dividend as fast as possible. “I don’t see anything that would stop us” from raising the payment in 2011, he says.

Jan. 3, 2011: The bank says it will take a $3 billion provision to settle claims from government-sponsored enterprises Fannie Mae and Freddie Mac.

Jan. 21, 2011: “We are pleased to put the GSEs behind us this quarter,” Moynihan says.

Then-Chief Financial Officer Charles Noski projects an “upper range” of $7 billion to $10 billion in losses on outstanding demands from private investors. The loss could be as low as “zero,” he says.

March 8, 2011: Bank of America “can generate significant excess capital and return it to shareholders,” according to a presentation at the company’s first investor day since 2007.

March 23, 2011: Bank of America says the Federal Reserve objected to its request to raise its dividend from 1 cent a share.

April 15, 2011: The bank says it had a $1 billion first-quarter provision, with more than half tied to Fannie Mae and Freddie Mac as the company’s Home Price Index declined. Moynihan announces a $1.6 billion deal with Assured Guaranty Ltd. to resolve claims tied to mortgage-backed securities covered by the insurer. Outstanding buyback demands climb to $13.6 billion.

June 29, 2011: The bank says it agreed to pay $8.5 billion to resolve claims from the Pimco, BlackRock group on $424 billion of bonds and set aside $5.5 billion more for other demands. Losses beyond that may be as much as $5 billion, the bank says. Adjustments on cost estimates are partly the result of fluctuations in home prices, CFO Bruce Thompson says.

“The cost expense and the uncertainty are all taken off the table for half of the private-label claims,” Moynihan says. Settling is better for the bank because it avoids the “possible outcome of being much more adverse to the company if we kept fighting.”

July 19, 2011: Bank of America posts a second-quarter loss (BAC:US) of $8.83 billion, the company’s worst ever. The lender says outstanding mortgage claims are $11.6 billion.

Aug. 8, 2011: American International Group Inc. (AIG:US), the insurer that received a $182.3 billion U.S. bailout, announces a suit against Bank of America to recover more than $10 billion in losses on mortgage bond investments.

Feb. 9, 2012: Bank of America commits as much as $11.8 billion, including a cash payment of $3.24 billion, as one of five lenders in a $25 billion settlement with states and the federal government to end a probe of abusive foreclosure practices.

April 20, 2012: The lender says the backlog of pending demands for refunds on soured loans reached a record $16.1 billion as a dispute deepened with Fannie Mae.

Oct. 17, 2012: Moynihan’s company says losses could be as much as $6 billion beyond what’s been set aside for demands that it repurchase shoddy home loans.

Jan. 7, 2013: The bank agrees to an $11.7 billion package as it resolves a dispute with Fannie Mae on loans from 2000 through 2008. The accord, and a deal to sell servicing rights, “are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Moynihan says.

Jan. 25, 2013: Moynihan says cleaning up the mortgage mess from Countrywide is like mountain climbing with an excessively heavy backpack. “As we look left and right, we’re right with the other climbers in terms of competitiveness,” he says. Rivals aren’t “working as hard as we are,” he says. “They have a CamelBak and a water, and we have a 250-pound (113 kilogram) backpack.”

April 17, 2013: Bank of America leads the Dow Jones Industrial Average lower after first-quarter profit misses estimates. The lender agrees to a $500 million settlement to resolve a class action, or group lawsuit, led by the Iowa Public Retirement System, over losses on mortgage securities.

“I don’t think anyone is going to ever at this point declare complete victory,” in the effort to resolve mortgage-related disputes,’’ CFO Thompson says. “We’re moving through, in a pretty meaningful way, this pipeline of items.”

May 6, 2013: MBIA Inc. (MBI:US) and Bank of America settle a five-year legal clash in a deal that will pay the bond insurer the equivalent of $1.7 billion.

Nov. 19, 2013: The lender climbs past $15.06, the price (BAC:US) on the day before Moynihan became CEO.

March 26, 2014: Bank of America agrees to a $9.5 billion settlement over claims it misrepresented loans packaged into bonds that were bought by Fannie Mae and Freddie Mac.

April 16, 2014: Bank of America posts a $276 million loss on costs tied to mortgage disputes. The company announces a $950 million deal tied to securities backed by Financial Guaranty Insurance Co. The bank says it had $6 billion in legal costs, including $2.4 billion in increased reserves for “previously disclosed legacy mortgage-related matters,” without elaborating on what those are.

April 28, 2014: Bank of America suspends plans for a dividend increase and $4 billion of share repurchases after finding an error in its stress-test submission to the Federal Reserve.

June 11, 2014: The U.S. prepares to sue Bank of America after the Justice Department broke off negotiations because it was dissatisfied with the bank’s offer to pay more than $12 billion, a person familiar with the matter says. The department’s request was for about $17 billion, the person says.

July 16, 2014: Bank of America says profit tumbled 43 percent in the second quarter after it spent $4 billion to cover litigation costs, including a $650 million settlement with AIG.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Peter Eichenbaum at peichenbaum@bloomberg.net Steve Dickson, Peter Eichenbaum


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $17.62 USD
    • 0.09
    • 0.51%
  • BLK
    (BlackRock Inc)
    • $360.15 USD
    • 1.31
    • 0.36%
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