Huge Mortgage Settlement Pushes Bank of America Into Q3 Loss

Frederic J. Brown, AFP/Getty Images
By Tanya Agrawal and Peter Rudegeair

Bank of America (BAC), reported a smaller-than-expected quarterly loss for common shareholders as a pickup in profits from trading helped make up for a $5.6 billion charge related to its record settlement with the government over shoddy mortgages.

The loss underscores how years after the financial crisis, the No. 2 U.S. bank is still paying for its mistakes, although fund managers and analysts have said the settlement may finally allow the bank to put last decade's housing crisis behind it.

Bank of America is the fourth of the six major U.S. banks to report third-quarter results. JPMorgan Chase (JPM) and Citigroup (C) were also hit by big legal expenses.

Chief Executive Officer Brian Moynihan, who took on the additional role of chairman in October, has been working to resolve Bank of America's legal and regulatory woes since he took over in 2010.

Four of the bank's five main businesses were profitable in the latest quarter, the exception being the mortgage business, underscoring the challenge still facing the 55-year-old CEO.

The $5.6 billion litigation expense was related to a $16.65 billion settlement reached with the government in August that was tied the bank's purchases of Countrywide Financial in July 2008 and Merrill Lynch six months later.

Bank of America has so far agreed to pay about $70 billion to resolve legal disputes related to the financial crisis -- more than double the amount JPMorgan has agreed to pay.

The bank's shares were down 2.4 percent at $16.12 in early trading amid a general market selloff that hit banks especially hard. The KBW bank index was down 1.83 percent.

Bank of America posted a net loss attributable to shareholders of $70 million, or a penny a share, for the three months ended Sept. 30, compared with a year-earlier profit of $2.22 billion, or 20 cents a share.

Net income including preferred stock dividends fell to $168 million from $2.5 billion.

The bank lost 3 cents a share on an adjusted basis, according to a calculation by Thomson Reuters I/B/E/S. Analysts on average had expected a loss of 9 cents a share.

"While it was a messy quarter, core results look okay," said Citigroup analyst Keith Horowitz.

Trading Revenues Rise

Total revenue slipped to $21.21 billion from $21.53 billion, while noninterest expenses, including litigation expenses, increased 20.5 percent to $19.74 billion.

Bond trading revenue, excluding accounting adjustments, rose 11 percent to $2.2 billion as market activity picked up in September. Citigroup's revenue from fixed income trading rose 5 percent, while JPMorgan's increased 2 percent.

Companywide investment banking fees rose 4 percent to $1.4 billion, while profit in the bank's largest business, retail banking, rose 3.9 percent to $1.86 billion.

Profit from wealth and investment management rose 12.9 percent to $813 million.

7 Best Things to Buy in October
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Huge Mortgage Settlement Pushes Bank of America Into Q3 Loss

Sure, plenty of Halloween costumes are at their most expensive now, but you can still find affordable options if you know where to look. "Shop last year's inventory to get the lowest prices. Most stores have a clearly marked clearance section in store and online," notes Howard Shaffer, vice president of, on Kiplinger. "You can also save 30 to 40 percent off this year's costumes if you wait to shop a day or two before Halloween. The selection will be gone, but the deals will be there. And, you can always shop online. Coupon codes will allow you to save even more on sale items and stack your savings."

"There are a lot of great deals on camping equipment in October," Shaffer says. "It's the end of camping season, and clearance sales are offering 60 to 70 percent off tents, summer hiking gear and fishing gear." It figures that camping essentials are cheaper just when you've wrapped up your outdoor shenanigans. That's often the nature of retail, though, and you can use it to your advantage. If your current camping supplies are looking a little rough, don't wait until the peak buying season to buy. Instead, purchase discounted goods now and put them in storage for next year.

Denim continues to be a hot buy this month, especially now that the back to school flurry of sales has died down and retailers are eager to keep sales up between now and the holidays. Denim is typically discounted by stores as a "get you in the door" maneuver in hopes that you'll stick around and buy more stuff. In addition to finding sales in stores, look for online promotions.

As car dealerships anticipate the new year, many are eager to sell both current and earlier models. "The clock is ticking on 2014, and dealers want to get rid of their new summer inventory," reports Apartment Therapy. "Now that it's October, the end of the year is in sight, and they are starting feeling the pressure." If you can, wait to the end of the month -- or the end of a promotion -- to take advantage of car salesmen who are especially eager to make that sale.

There are several jewelry buying lulls in the year. One of those is in early fall while everyone's preoccupied with Halloween and back-to-school shopping, just before the major holiday push.

New home appliances are released during the fall, which has retailers eager to move the old stuff off the showroom floor. Promotional sales are common, and you have more legroom to negotiate.

Gardening and outdoor necessities are on sale for the same reason camping gear is discounted: they're out of season. Head to any retailer that sells grills, plants, gardening supplies, lawn equipment, patio furniture and the like, and you're likely to find sweet deals.
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