Charlotte: Bank of America Corp, the largest US bank, reported a second straight quarterly loss after writing down the value of its limping mortgage business.
Bank of America's Merrill Lynch businesses including retail brokerage and investment banking were profitable but did not make enough money to overcome the bank's massive losses from mortgages.
As the financial crisis was ramping up, then Chief Executive Kenneth Lewis bought Countrywide Financial Inc for USD 4.2 billion. Current CEO Brian Moynihan is still coping with the aftermath.
In the fourth quarter, Bank of America took a write down of USD 2 billion to recognize the declining value of Countrywide. The bank also set aside USD 4.1 billion for legal costs linked to home loans it is buying back from investors, or is likely to buy back.
"Countrywide is still hurting them and it will continue to. It's like a tooth being pulled -- it's only going to feel good when it's done," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc in Cincinnati, which does not own Bank of America shares.
Bank of America's performance to some degree mirrored its main rivals, including Citigroup Inc and JPMorgan Chase, which have reported weak fixed income trading results and improving credit performance.
But Bank of America is the only major bank this week to post a fourth-quarter loss, and it missed on analysts' revenue estimates.
The bank reported revenue of USD 22.7 billion, below an expected USD 24.9 billion and its third straight quarterly decline. Revenue shrank 11 percent from a year ago.
The bank's shares were down 1.3 percent at USD 14.35 in morning trading, lagging the KBW Bank Index, which was up 1.4 percent.
Bank of America's home loan business has lost more than USD 12 billion in the last two years.
Chief Financial Officer Charles Noski said on a conference call that the bank may have to set aside another USD 7 billion to USD 10 billion to cover legal settlements with mortgage investors.
CEO Moynihan, speaking on a channel, said the US housing market would continue to bump along the bottom, and the banking industry would be dealing with related problems for years to come.
Despite the tough mortgage environment, Moynihan said on the conference call that he remained optimistic about the US economy in 2011.
All of the bank's measures of consumer and business spending show positive trends, he said.
Moynihan also said the bank plans to raise its dividend in the second half of 2011 if it passes the Federal Reserve's second stress test.
The bank slashed its quarterly dividend to 1 cent per share at the height of the financial crisis after receiving USD 45 billion in US government aid.
The 19 largest US banks, including Bank of America, are being tested by the Fed, with results expected later this spring.
Mortgages are hurting Bank of America, but financial regulation could also weigh on future results, bank officials said.
Noski said a new law limiting the fees that big banks can charge merchants for processing debit card transactions could cost Bank of America USD 1 billion of revenue starting in the second half of 2011.
Although the bank has suffered from its countrywide purchase, its acquisition of Merrill Lynch has helped.
Bank of America's global banking and markets unit, combined with its global wealth and investment management arm, which includes Merrill Lynch's investment bank operations and retail brokerage, earned $1.06 billion in the fourth quarter.
"Merrill worked out much better than you would have thought," said Mike Holland, founder of Holland & Co, which oversees more than USD 4 billion of assets.
The fourth quarter was the second straight quarter to include large one-time charges for the bank, and pushed it to a second straight quarterly loss after two consecutive quarterly profits in Moynihan's first year as CEO.
In the third quarter, the bank reported a USD 10 billion write down of its cards business due to new curbs on debit card fees.
Moynihan is trying to turn around a bank cobbled together by Lewis primarily through acquisitions over the last decade. Moynihan is a former FleetBoston executive, a bank that BofA bought in 2003.
BofA's most profitable division in the fourth quarter, its cards unit, was built mainly by the purchase of Delaware-based credit card giant MBNA Corp in 2005 for USD 35 billion.
While the bank's credit costs continue to shrink -- nonperforming loans declined 8.6 percent from a year earlier to USD 32.6 billion in the fourth quarter -- revenue is also declining.
Despite the shrinking revenue, the bank posted loan growth of 0.7 percent compared with the third quarter, rising to USD 940 billion.
The bank reported a fourth-quarter shareholder loss of $1.57 billion, or 16 cents a share, compared with a loss of $5.2 billion, or 60 cents a share, a year earlier.
Excluding the mortgage business writedown, the bank earned $756 million, or 4 cents per share.