BofA Posts Loss as Litigation Charges Weigh

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Bank Fees
Mark Lennihan/AP
By Peter Rudegeair
and Tanya Agrawal


Bank of America (BAC) posted a first-quarter loss as the No. 2 U.S. bank recorded $6 billion in litigation expenses related to a settlement with the Federal Housing Finance Agency and other mortgage-related matters.

The bank reported a net loss attributable to shareholders of$514 million, or 5 cents a share, in the three months to March 31 compared with a profit of $1.11 billion, or 10 cents a share, a year earlier.

The previous quarter's results were hit by $1.6 billion in charges related to disputes with bond insurers.

Analysts on average had expected earnings of 5 cents a share, according to Thomson Reuters I/B/E/S.

BofA shares, which have risen 5.3 percent so far this year, were down nearly 2 percent at $16.10 in premarket trading.

Revenue fell 3.8 percent to $22.66 billion, excluding accounting adjustments, but beat the average analyst estimate of $22.33 billion.

Bank of America is coming off its best year since before the financial crisis, with 2013 net income of $11.4 billion the highest since 2007. But large legal bills continue to overshadow the performance of many of its main businesses.

BofA agreed in March to pay $9.5 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds, helping it to end one of the largest legal headaches it still faced from the financial crisis.

BofA made progress resolving many of its legal issues in the first quarter, although some proved to be costly.

The bank said on March 26 that first-quarter pre-tax profit would be reduced by about $3.7 billion as a result of a settlement with the Federal Housing Finance Agency, %VIRTUAL-article-sponsoredlinks%the overseer of government-backed mortgage giants Fannie Mae and Freddie Mac.

"The cost of resolving more of our mortgage issues hurt our earnings this quarter," Chief Executive Officer Brian Moynihan said in a statement.

Litigation expenses rose to $6 billion from $2.2 billion in the first quarter of 2013. Noninterest expenses increased to $22.2 billion from $19.5 billion.

Costs in the bank's Legacy Assets and Servicing division, excluding litigation expenses, fell to $1.6 billion from $2.6 billion a year earlier and $1.8 billion in the third quarter.

The Charlotte, North Carolina-based bank has said that costs in the unit, which handles delinquent mortgage loans, would fall below $1.1 billion a quarter by the end of 2014 and will be about $500 million a quarter by the end of 2015.

Bank of America released $379 million from its allowances for bad loans, compared with $804 million in the same period a year earlier and $1.2 billion in the fourth quarter.

BofA Posts Loss as Litigation Charges Weigh
"Your daily habits and routines are the reason you got into this mess," writes Trent Hamm, founder of TheSimpleDollar.com. "Spend some time thinking about how you spend money each day, each week and each month." Do you really need your daily latte? Can you bring your lunch to work instead of buying it four times a week? Ask yourself: What can I change without sacrificing my lifestyle too much? 
Remove all credit cards from your wallet and leave them at home when you go shopping, advises WiseBread contributor Sabah Karimi. “Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control,” she writes.
If you do a lot of online shopping at one retailer, you may have stored your credit card information on the site to make the checkout process easier. But that also makes it easier to charge items you don't need. So clear that information. "If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account," Hamm writes.  
Reward yourself when you reach debt payoff goals. "The only way to completely pay off your credit card debt is to keep at it, and to do that, you must keep yourself motivated," Bakke writes. Just make sure to reward yourself within reason. For example, instead of a weeklong vacation, plan a weekend camping trip. "If you aim to reduce your credit card debt from $10,000 to $5,000 in two months," Bakke writes, "give yourself more than a pat on the back." 
“Establish a budget,” writes Money Crashers contributor David Bakke. “If you don't scale back your spending, you'll dig yourself into a deeper hole." You can use personal finance tools like Mint.com, or make your own Excel spreadsheet that includes your monthly income and expenses. Then scrutinize those budget categories to see where you can cut costs.    
Sort your credit card interest rates from highest to lowest, then tackle the card with the highest rate first. "By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards," writes Mint.com spokeswoman Hitha Prabhakar.
To make a dent in your debt, you need to pay more than the minimum balance on your credit card statements each month. "Paying the minimum -– usually 2 to 3 percent of the outstanding balance -– only prolongs a debt payoff strategy," Prabhakar writes. "Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments." Or if your minimum payment is $100, try doubling it and paying off $200 or more. 
If you have a high-interest card with a balance that you’re confident you can pay off in a few months, Hamm recommends moving the debt to a card that offers a zero-interest balance transfer. "You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate," he warns. "If you do it carefully, you can save hundreds on interest this way."
Have any birthday gifts or old wedding presents collecting dust in your closet? Look for items you can sell on eBay or Craigslist. "Do some research to make sure you list these items at a fair and reasonable price," Karimi writes. “Take quality photos, and write an attention-grabbing headline and description to sell the item as quickly as possible." Any profits from sales should go toward your debt. 
If you receive a job bonus around the holidays or during the year, allocate that money toward your debt payoff plan. "Avoid the temptation to spend that bonus on a vacation or other luxury purchase," Karimi writes. It’s more important to fix your financial situation than own the latest designer bag.
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