BofA misses estimates as mortgage banking weighs on results

Shares React

Bank of America slipped to $11.91 at 8:24 a.m. in New York. After leading the Dow Jones Industrial Average in 2012, the stock is trailing broad market benchmarks and most of its peers this year. The firm’s 5.8% advance through yesterday to $12.28 a share compares with 13% for the Dow and 8.5% for the 24-company KBW Bank Index.

The bank was the last of the four biggest U.S. lenders to report results. JPMorgan Chase & Co., the largest U.S. bank, said earnings rose 33% to a record as credit quality improved. Wells Fargo & Co.’s record income increased 22% aided by cost cuts and Citigroup Inc. posted a 30% rise as results from fixed-income trading and investment banking beat estimates.

Moynihan has spent his tenure as CEO cleaning up financial, legal and regulatory quagmires inherited when he was promoted to the top job in 2010. Slimming the firm has meant letting Bank of America fall out of first place among its peers in terms of assets and workforce, and the asset sales put more pressure on revenue, which has been hurt by sluggish borrowing.

Countrywide Loans

The most troubled assets include loans made by Countrywide Financial Corp., the mortgage company purchased in 2008, whose lax standards were blamed by lawmakers and regulators for fueling the housing bubble. The bank has been bombarded by legal claims tied to faulty mortgages and foreclosures, and some of the settlements negotiated by Moynihan’s team still face court challenges.

Litigation costs rose 11% to $881 million as the bank reached a preliminary settlement for class-action lawsuits targeting Countrywide. The claims focused on Countrywide’s disclosures in 429 offerings of mortgage-backed securities from 2005 through 2007, with an original principal balance exceeding $350 billion, according to the statement. The accord requires court approval.

“The revenue stories for the banks have never developed the way the bulls would have liked it, but the economy hasn’t turned around yet,” said Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia. Moynihan’s cost-cutting has begun to show results, and the company is “heading in the right direction,” said Miller, who rates the stock neutral.

Marketing Plan

To improve revenue, which slid 11% to $84.2 billion last year, Moynihan is setting new targets for regional managers to boost sales and pushing them to get existing customers to take more products, people with knowledge of the effort have said. Moynihan summoned more than 100 of the leaders to Chicago this month to discuss the initiative, said the people.

The CEO’s plan coincides with Bank of America’s marketing campaign introduced this month. Advertisements emphasize the ways people and corporations are assisted by the lender with the tagline “Life’s better when we’re connected.” The firm’s previous slogan was “Bank of Opportunity.”

Efforts to repair the bank’s reputation with investors and regulators got a boost last month when Moynihan won Federal Reserve approval to buy back as much as $5 billion in shares, the firm’s first repurchase program since the 2008 financial crisis.

Bloomberg News

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