Bank of America Corp. reported Friday a first-quarter profit, a shake-up in its executive ranks and an agreement to settle mortgage loan buyback requests from an insurer.
The Charlotte-based bank, after two consecutive money-losing years, reported a profit for common shareholders of $1.7 billion, down 39 percent from a $2.8 billion gain a year earlier. The results were hurt by higher mortgage-related and legal expenses and helped by an overall reduction in loan losses and improved profits in commercial banking and wealth management.
In a surprise move, the bank said chief financial officer Chuck Noski, with the company less than a year, will become vice chairman and hand his duties to chief risk officer Bruce Thompson by the end of the second quarter. Noski, 58, intended to relocate to Charlotte this summer but has told chief executive Brian Moynihan he can't do so because of an illness to a close family member, the bank said.
The bank also named Morgan Stanley Vice ChairmanGary Lynch to the new position of global chief of legal, compliance and regulatory relations, based in New York. The bank's general counsel, Ed O'Keefe, will report to Lynch, 60, who will join the company after an industry-required time-off period.
Noski will be based in Los Angeles and continue to advise management and help with client development. Thompson, 46, will keep his chief risk officer title until a search for a replacement is completed. He is based in Charlotte.
Friday's earnings report was the just the latest filled with one-time expenses, gains and other unusual charges as Moynihan continues his efforts to stabilize a company still trying to recover from the financial crisis.
In a conference call with analysts, the CEO said the company continues to make progress on its plans but reiterated it won't be until after 2012 when the company can reach "normalized" pretax annual income of $35 billion to $40 billion. Meeting that goal depends on lowering mortgage expenses, an improved interest-rate environment and better economic conditions, he said.
In a major setback last month, the bank disclosed that the Federal Reserve Board had rejected its request for a modest increase to its penny-per-share quarterly dividend in the second half of this year. Moynihan shared few details but said the Fed's message was basically that the bank had to deliver on promises to improve its risk management systems and to build its capital base.
"We are doing what we need to do," Moynihan said. The bank plans to resubmit its request for a dividend increase but still isn't sure of the process, he said.
Cutting expenses, jobs
A key message on the conference call was that the bank continues to look to reduce its overall workforce, now at 288,000. The bank on Thursday said it's eliminating 1,500 mortgage underwriting and processing jobs as loan originations fall. It's also eliminating 2,000 contractors in the mortgage business, Moynihan said.
The bank continues to add jobs is in the area that works with distressed borrowers. Over time, Moynihan expects this workforce of more than 30,000 to fall, but it grew by 2,700 during the quarter. In the rest of the company, employment fell by 2,000, including the addition of Merrill Lynch stock brokers and investment bankers hired overseas.
"Everywhere we can, we continue to work on expenses," Moynihan said.
The bank announced this week an expense reduction and efficiency effort called Project New BAC, which is being led by senior leaders and consulting firms. The bank said it won't start seeing financial results from the effort until the second half of 2012.
Consumer banking hit
Overall, Bank of America's results equated to earnings of 17 cents per share. Analysts polled by Thomson One Analytics had estimated the bank would post earnings of 27 cents per share, although those estimates sometimes exclude certain one-time expenses.
Total revenue in the first quarter was $26.9 billion, down from $32 billion a year ago but up from $22.4 billion in the fourth quarter. The bank is losing consumer banking income after giving up once lucrative overdraft fees charged to debit-card users and saw a decrease in trading revenues.
"We're not satisfied with the results ... but I think overall, we found the first quarter to be encouraging," Noski said in an interview Friday afternoon.
Of the bank's six major segments, all made money in the first quarter except the renamed consumer real estate services division. That unit lost $2.4 billion, an improvement from a $5 billion loss in the fourth quarter.
The unit's red ink stemmed from $3 billion in costs for mortgage buybacks, legal fees and other mortgage-related expenses. The Legacy Asset Servicing part of the unit, where bad loans are segregated, lost $2.5 billion, while the Home Loan and Insurance portion, which holds healthy loans, made a small profit of $130 million.
As mortgage loans from the housing boom sour, Bank of America and other large banks face requests from investors to buy back these mortgages, which had been bundled into securities. In January, Bank of America announced agreements with government-controlled mortgage giants Freddie Mac and Fannie Mae.
The bank announced that it reached an agreement with insurer Assured Guaranty Ltd. to resolve all repurchase requests related to 29 mortgage-backed securities trust with total exposure of $35.8 billion. The bank will make a cash payment of $1.1 billion and enter a loss-sharing agreement expected to cost $470 million.
Through the first quarter, the bank has set aside $6.2 billion to cover the cost of loan buybacks. It added $1 billion to this cushion during the quarter. While its liabilities to Freddie and Fannie are mostly resolved, the bank reiterated that it may still have to pay $7 billion to $10 billion in excess of its reserve to other private investors over time.
"This has taken a number of years to get us to this point," Noski said. "It's going to take us several years to resolve it, but you are seeing us work very hard to address those legacy issues."
Bank of America and other large banks this week signed agreements with federal banking regulators requiring them to improve their foreclosure and loan modification process. The cost associated with the agreement was already included in mortgage servicing costs, Moynihan said. But the bank still faces additional costs from civil penalties and any other expenses stemming from a possible settlement with the U.S. Justice Department and state attorneys general.
Still losing ground
As it works to shed mortgage problems inherited from Countrywide Financial Corp., Bank of America continues to fare poorly in comparison to some other large banks. New York-based JPMorgan Chase & Co. on Wednesday said its first-quarter profit for common shareholders increased 73 percent to $5.1 billion from a year ago. San Francisco-based Wells Fargo & Co. reports on Wednesday.
In a report, Baird analyst David George called the results another "noisy quarter" for Bank of America but said he was encouraged by improvement in credit losses.
After initially rising Friday morning, Bank of America shares fell 2.4 percent to $12.82.
