After making huge payments to settle legal claims regarding its mortgage business, Bank of America reported a 63% decrease in fourth-quarter profit. At $732 million, the bank’s earnings amounted to a slim $0.03 a share. Earnings narrowly beat analyst estimates of $0.02 a share. Bank of America’s quarterly revenue fell about 25%, to $18.7 billion. Excluding the various charges, revenue in the fourth quarter would have totaled $22.6 billion.
Bad mortgages continue to weigh on Bank of America more than four years after the credit crisis. The bank’s mortgage woes were largely inherited from Countrywide Financial, the subprime lending giant bought by Bank of America in 2008. The bank also struck an agreement to pay $11 billion to resolve claims of selling troubled mortgages to Fannie Mae, which experienced deep losses associated with the loans.
Bank of America disclosed as part of the announcement that its fourth-quarter pretax income took a $2.7 billion hit to cover part of the deal. Bank of America previously announced a $700 million charge incurred on the perceived improvement in its debt. Bank of America also warned investors that it deducted $2.5 billion for settlements with regulators over claims of foreclosure abuses. The expenses wiped out $5.9 billion, or $0.34 a share, from fourth-quarter earnings. James Sinegal, an analyst with the research firm Morningstar, said, “Litigation expenses have taken a huge toll.”
The drop in earnings stems from the steep charges tied to mortgage settlements with the government. However, Bank of America noted that the one-time legal charges helped it to continue shedding the legacy of the crisis, even though it skewed the bank’s true performance. The bank’s chief executive, Brian T. Moynihan, said in a statement, “We enter 2013 strong and well-positioned for further growth.” For the entire fiscal year, profit jumped to $4.2 billion, from $1.4 billion in 2011, signaling a potential recovery for Bank of America. In other signs of health, delinquent loans declined in the quarter and the bank continued to report huge gains in it’s wealth management unit.