Litigation costs hit Bank of America's quarterly profit
By Peter Rudegeair and Tanya Agrawal
(Reuters) - Bank of America Corp said second-quarter profit fell 43 percent, a bigger decline than analysts had expected, after the bank posted $4 billion of litigation expenses linked to mortgage disputes following the financial crisis.
The expenses included a $650 million settlement with American International Group and money it set aside for an expected settlement with the Department of Justice. Bank of America has already agreed to pay $50 billion to settle disagreements stemming from the market meltdown in 2008.
The bank's shares fell 1.9 percent to $15.50 in early afternoon trading.
The expenses far exceeded the $471 million in legal charges the bank posted in last year's second quarter, although it was less than the $6 billion it recorded in this year's first quarter.
Higher legal costs overshadowed the increased profits that many of the bank's main businesses posted. Retail banking earnings, including credit cards, rose 28.5 percent to $1.79 billion. Commercial and investment banking profit rose 4.3 percent to $13.5 billion, thanks in part to a record quarter in underwriting equities.
"The sins are seven years old and the things that are going on in the future look bright," said Bill Smead, chief investment officer of Smead Capital Management, a Seattle-based investment firm that owns around 2.6 million shares in Bank of America.
Sales and trading profit jumped 14.44 percent to $1.1 billion, helped by a 5 percent increase in revenue in bond trading to $2.4 billion, excluding an accounting adjustment. Higher revenues in trading corporate, mortgage and municipal bonds help Bank of America avoid the double-digit declines in bond trading that rivals JPMorgan Chase & Co JPM.N and Citigroup Inc C.N experienced.
The second-largest U.S. bank said on Wednesday that earnings for common 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. Continued...