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Bank of America Reports $8.8 Billion Loss

Stocks in this article: BAC

Story updated with additional information.

  • The bank reported a net loss of $8.8 billion, or 90 cents a share.
  • Analysts expected a loss of 90 cents per share.
  • Excluding mortgages, net income was $3.7 billion, or 33 cents per share
  • The bank closed trading Monday at $9.72.

NEW YORK ( TheStreet) -- Bank of America (BAC) earnings continued to bleed from its mortgage operations in the second quarter.

The largest U.S. bank by assets posted a net loss of $8.8 billion, or 90 cents a share for the second quarter, compared with a net profit $3.2 billion, or 27 cents a share, it earned in the same quarter a year-ago.

Bank of America CEO Brian Moynihan

Analysts expected a net loss of 90 cents per share, according to Thomson Reuters.

A majority of the loss was attributed to the recent agreement to settle investor claims related to Countrywide-issued first-lien mortgage-backed securitizations, the banks said in a statement.

"Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues," said ceo Brian Moynihan. "We intend to continue our efforts to put the mortgage uncertainty behind us, build capital through the strength of the franchise, and deliver the returns for shareholders that we owe them."

Analysts had been prepared for the mortgage-related losses, since they were announced June 29. Even so, they did not appear overly impressed with the performance of the rest of Bank ofr America's businesses.

Net interest margin (NIM)--the difference between the bank's cost of capital and what it earns on its loans--was weaker than expected and weaker than it had been in the first quarter, according to a report Tuesday from Stifel Nicolaus after the earnings release.

Bruce Thompson, Bank of America's CFO, said during a conference call with analysts Tuesday the NIM of 2.5% was "consistent with our previous guidance where we expected net interest income margin to trough in the 2.5% area."

Thompson attributed the NIM compression to lower consumer loan balances, lower yields and the drop in long term interest rates which he said negatively impacted hedging results. He also cited lower trading related revenues.

Credit quality continued to improve, though at a slower pace than previously, according to a note from Sandler O'Neill analyst Jeff Harte.

Harte argued the results were "generally in line with expectations," adding that "could be good news from Bank of America shares in light of recent price declines."

Bank of America shares indeed opened higher, but were down 1.70% to $9.56 in mid-morning trading, and set a new 52-week low of $9.47 at one point.

While discussion of Bank of America's major issue--its mortgage-related costs--was relegated largely to the background by the fact that it had already been aired June 29, anyone looking for new signals the bank has a clear handle on its exposure likely came away disappointed from Tuesday's earnings presentation.

As had been previously announced, Bank of America took some $20 billion in mortgage-related charges, while saying it may require another $5 billion to address claims by so-called "private label" investors in mortgage securities.

While that statement may have been meant to provide some clarity to investors, it is not clear it had the intended effect, a Morgan Stanley analyst Betsy Graseck asked for an update on a hoped-for settlement with state and federal regulators over foreclosures.

Thompson responded the issue is "very fluid and continues to move around," noting that some litigation reserves had been set aside to address a potential settlement, though he could not be sure whether those reserves would be sufficient.

Bank of America executives were on firmer ground in explaining their plans to shrink the balance sheet. In an exchange with Nomura analyst Glenn Schorr, Thompson explained that an item risk weighted assets could decline by $200 billion to $250 billion without "any material level of impact to the income statement," since certain business being reduced, such as a unit called structured credit trading, were money losers anyway.

"Not bad," was Schorr's response.

More difficult to answer were questions about future growth. Asked about the possible effect on the bank's earnings of increased skepticism among the American public toward the benefits home ownership, CEO Brian Moynihan gave a somewhat flowery response that waslacking in specifics.

"Our job is to provide mortgage products...in a very strong, very focused and very fair way," he said.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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