Bank of America Corp. posted an unexpectedly sharp drop in first-quarter profit as higher expenses from delayed home foreclosures weighed on its mortgage business.
The largest U.S. bank lost more than $2.39-billion (U.S.) in its home loan business as revenue fell and expenses rose. The foreclosure mess that began in the fourth quarter of 2010, with borrowers accusing major banks of repossessing homes without having the right paperwork in place, was a key source of higher costs in the quarter.
The bank also announced a new chief financial officer.
Story continues below advertisement
The first-quarter results give some inkling of why the Federal Reserve told the bank in March to rein in its plans to boost dividends, even as competitors were authorized to hike their payouts.
"Bank of America is further behind. And the reason they're further behind is because of what's going on with the mortgage business," said Ben Wallace, analyst at Grimes & Co, with $1-billion under management.first profit since the second quarter of 2010. It faced big mortgage and card-related losses throughout the second half of last year.
Its Merrill Lynch brokerage business provided a bright spot in an otherwise dismal first quarter, reporting sharply higher revenue and client assets as well as a net increase of nearly 200 financial advisers.
Bank of America's results are closely tied to the health of U.S. consumers. The Charlotte, North Carolina-based bank does business with one of every two U.S. households.
Story continues below advertisement
Bank of America, built through a series of acquisitions over decades, made an ill-fated purchase in 2008 when it bought mortgage lender Countrywide Financial Corp as the financial crisis was intensifying. The purchase gave Bank of America more subprime mortgages, home equity loans, and other assets that have generated big losses. The bank needed two government rescues during the financial crisis.
On Wednesday, Bank of America rival JPMorgan Chase & Co, the second-largest U.S. bank, said it suffered extraordinarily high losses on mortgage-related issues in the first quarter.
"Unfortunately, these losses will continue for awhile," said JPMorgan Chief Executive Jamie Dimon.
Bank of America Chief Executive Brian Moynihan, who took the helm in early 2010, is trying to fix the bank by cutting costs and selling more products to retail customers, but he faces as uphill battle.
Story continues below advertisement
Mr. Moynihan has put new people in charge of many areas of the bank, but changes are already underway in the executive suite. On Friday the bank said Bruce Thompson, its chief risk officer, will become chief financial officer by the end of the second quarter. The current CFO, Charles "Chuck" Noski, will become vice chairman of Bank of America.
Bank of America posted first-quarter net income of $2.0-billion, or 17 cents per share, down from $3.2-billion, or 28 cents per share, in the same quarter a year ago.
Analysts on average had forecast earnings of 27 cents a share, according to Thomson Reuters IBEX. It was not immediately clear if the results were comparable.
The loss in its residential mortgage unit of more than $2.39-billion compared with a loss of $2.07-billion a year earlier.
Story continues below advertisement
Overall expenses rose in the mortgage business, but write-offs of bad loans actually fell: Net charge-offs of residential mortgages were $905-million, compared with $1.07-billion a year earlier.
The bank's shares were up 1.1 percent in pre-market trading.