Bank of America Corp, the second-largest U.S. bank by assets, reported a 43 per cent drop in second-quarter profit as mortgage revenue fell and litigation costs soared.
Earnings attributable to shareholders fell to $2.04-billion, or 19 cents per share, in the three months ended June 30 from $3.58-billion, or 32 cents per share, a year earlier.
Analysts on average had expected earnings of 29 cents per share, according Thomson Reuters I/B/E/S. It was not immediately clear if the estimate was comparable to the reported figure.
Bank of America’s shares, which have barely moved this year, fell slightly to $15.68 in premarket trading on Wednesday.
Litigation expenses surged to $4-billion in the latest quarter from $471-million a year earlier.
The bank, which has already agreed to pay more than $50-billion to settle disputes stemming from the financial crisis, has been negotiating a multibillion dollar settlement with the Department of Justice to resolve investigations into the sale of mortgage-backed bonds.
Bank of America has offered to settle for about $12-billion, while the Justice Department has suggested $17-billion, sources familiar with the matter have said.
Excluding accounting adjustments, the bank’s revenue fell to $21.7-billion from $22.7-billion in the same period of 2013. Operating expenses rose to $18.54-billion from $16.1-billion.
Still, Chief Executive Brian Moynihan struck an upbeat note.
“The economy continues to strengthen...,” he said in a statement. “... 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.”
The bank posted a loss of $2.8-billion in its consumer real estate services business, up from a loss of $930-million a year earlier, largely due to a rise in litigation expenses.
Bank of America made $13.7-billion in home loans and home equity loans in the quarter, a drop of 49 per cent from the year-earlier quarter. First-mortgage originations declined 59 per cent as refinancing demand weakened.
Bank of America released $662-million from funds set aside to cover bad loans, compared with $900-million a year earlier.
Compared with the year-earlier quarter, bond trading revenue rose 5 per cent to $2.4-billion, excluding an accounting adjustment, outperforming rivals.
On Tuesday, JPMorgan Chase & Co reported a 15 per cent drop in profit from fixed-income markets in the quarter.
Citigroup Inc, which reported on Monday, reported a 12 per cent decline.
Investors have been refraining from trading fixed-income securities in the absence of a strong indication of when interest rates will rise.
New rules aimed at making the financial system safer have also reduced volatility, reducing opportunities to trade.
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