10:12 a.m. | Updated
More than four years after the credit crisis, bad mortgages continue to weigh on Bank of America.
On Thursday, the bank reported a widely expected 63 percent drop in fourth-quarter profit after making huge payments to settle legal claims over its mortgage business. The bank’s earnings, a slim $732 million, amounted to 3 cents a share. That figure narrowly beat estimates of 2 cents a share, based on a survey of analysts by Thomson Reuters.
Bank of America’s quarterly revenue fell about 25 percent, to $18.7 billion, a drop that stems from the steep charges tied to mortgage settlements with the government. The figures underscored the extent of the bank’s mortgage woes, which it largely inherited from Countrywide Financial, the subprime lending giant it bought in 2008. Without the various charges, fourth-quarter revenue would have totaled $22.6 billion.
But the results also point to signs of a recovery for Bank of America. For the entire year, profit jumped to $4.2 billion from $1.4 billion in 2011. Delinquent loans declined in the quarter, another sign of health, and the bank’s wealth management unit continued to report huge gains.
Bank of America also noted that the one-time legal charges, which skewed the bank’s true performance, helped it to continue shedding the legacy of the crisis.
“We enter 2013 strong and well-positioned for further growth,” the bank’s chief executive, Brian T. Moynihan, said in a statement.
The bank’s stock was down more than 3 percent, to $11.34 a share, in morning trading.
Still, for investors, Bank of America’s bleak quarterly profit numbers come as no surprise. The bank previously announced that it incurred a $700 million charge on the perceived improvement in its debt, an accounting-related cost that actually indicated greater public confidence in the stability of the bank. (The charges were offset because of a one-time $1.3 billion gain from foreign tax credits.)
The bank’s recent legal settlements also weighed on its results. Bank of America had warned investors that it deducted $2.5 billion to settle with regulators over claims of foreclosure abuses.
The bank last week also struck an $11 billion agreement to resolve claims that it sold troubled mortgages to the government-controlled housing finance giant Fannie Mae, which experienced deep losses from the loans. As part of the announcement, Bank of America disclosed that its fourth-quarter pretax income took a $2.7 billion hit to cover part of the deal.
All told, the expenses wiped out $5.9 billion, or 34 cents a share, from fourth-quarter earnings.
“Litigation expenses have taken a huge toll,” said James Sinegal, an analyst with the research firm Morningstar.
Bank of America’s results are a reminder of past mistakes, including the takeover of Countrywide, a company that symbolized the reckless lending practices before the housing market crash.
The results also come in contrast to earnings from the bank’s competitors, including Wells Fargo and JPMorgan, which reported record profit in recent days on the back of a booming mortgage business. As most banks capitalize on low interest rates, Bank of America is retrenching somewhat. It recently sold about 20 percent of its loan servicing business.
But the mortgage settlements are also helping the bank close a dark chapter in its history. The deal last week put to rest a bitter battle with Fannie Mae that had lingered since the housing bubble burst.
Bank of America also reached a $2.43 billion settlement with shareholders last fall. The agreement, stemming from its takeover of Merrill Lynch, resolved accusations that the bank misled investors about Merrill’s health.
“We put a lot of risk behind us in 2012,” Bruce R. Thompson, the company’s chief financial officer, said in a conference call on Thursday. “We just feel like we’re in a much better place going into 2013.”
In another retreat from the mortgage mess, the bank reported that the number of home loans delinquent for more than 60 days in the fourth quarter fell 17 percent. The bank’s provision for credit losses declined 24 percent from the same period a year ago.
The bank is getting leaner, too, as part of the broad “New BAC” cost-cutting initiative, which Mr. Thompson declared to be “on track.”
As of the end of 2012, the company had 267,190 full-time employees, down 5,404 from the third quarter. It had 14,601 fewer employees than it had at the end of 2011.
Aside from mortgages, the bank improved on a variety of fronts. It reinforced its capital levels and increased its consumer and business banking income.
The wealth management unit, which includes Merrill Lynch’s sprawling brokerage business, notched record profit of $578 million, up 79 percent.
“We feel very good about the momentum we’ve seen,” Mr. Thompson said.
DealBook: Profit Drops 63% at Bank of America After Mortgage Settlements
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DealBook: Profit Drops 63% at Bank of America After Mortgage Settlements
