Big News NetworkNEW YORK – Bank of America, the second largest US bank, Wednesday reported second quarter net income of $2.3 billion, a 43 percent drop compared to $3.4 billion a year earlier, after a fall in mortgage revenue and a rise in legal costs.
The bank’s earnings fell to $2.3 billion in large part due to $4 billion in litigation expenses. But the bank pointed to lower non-litigation expenses and reported gains in some categories, including investment banking fees.
The bank’s finances have been hit recently by huge payments to the authorities to fend off accusations of wrong-doing. Since the financial crisis in 2008, the Bank of America has spent over $60 billion in legal fees, buybacks, and settlements to resolve issues tied to mortgage securities, including the lawsuit with AIG.
Bank of America is in talks with the US Justice Department on another big settlement over allegations it misled investors. The bank said the latest legal charge relates “to previously disclosed legacy mortgage-related matters.”
The bank announced it would pay a $650 million settlement to insurer AIG on mortgage-backed securities.
“The AIG settlement amount of $650 million was covered by litigation reserves as of June 30, 2014,” the bank said in a statement Wednesday.
“The economy continues to strengthen, and our customers and clients are doing more business with us,” said chief executive Brian Moynihan optimistically.
“Among other positive indicators, consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity. We are well positioned for further progress.”
In the first quarter of 2014, the Bank of America reported a loss of $276 million following a $6 billion legal charge to settle mortgage-related lawsuits.
Its earnings translated into per-share profits of 19 cents, compared with analyst forecasts for 29 cents per share. The legal expense shaved 22 cents per share from earnings.
Revenues fell 4.3 per cent to $21.96 billion, above the $21.62 billion forecast by analysts. Shares fell 1.1 per cent to $15.64 in pre-market trade.
In the past year its shares have fallen from 32 cents to 19 cents per share.
In April the bank agreed to pay $9.5 billion for misleading US mortgage lenders Fannie Mae and Freddie Mac before the financial crisis in 2008.
It then agreed separately to pay $783 million in fines and refunds, for mis-selling payment and identity theft insurance to nearly three million credit card customers.
The bank’s chief financial officer Bruce Thompson acknowledged the rise in litigation costs and praised the bank for doing “a good job managing expenses”.
He also said that during the quarter the bank’s credit losses remained “near historical lows.”
The bank’s results come as analysts have noted a split in the US lenders’ quarterly results between banks that cater mainly to U.S customers and those with a more prominent global presence.
Domestic-orientated banks have been helped by a pick-up in the U.S economy