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Morgan Stanley: Earnings Loser (Update 1)

But the company reported outstanding mortgage repurchase claims of $17.135 billion as of March 31, showing that new claims were continuing to come in.

Bank of America's first-quarter net interest income was $10.875 billion, increasing from $10.555 billion in the fourth quarter, but declining from $11.053 billion in the first quarter of 2012. The sequential increase ran counter to the industry trend. Bank of America's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- widened to 2.43% in the first quarter from 2.35% in the fourth quarter, although the margin was down from 2.51% in the first quarter of 2012.

First-quarter noninterest income totaled $12.833 billion, increasing from $8.336 billion the previous quarter and $11.432 billion a year earlier. The company's trading account profits rose to $2.989 billion in the first quarter, from $792 billion in the fourth quarter and $2.075 billion in the first quarter of 2012.

In line with the industry trend Bank of America's gain-on-sale margin for mortgage loans declined to 3.26% in the first quarter from 4.38% in the fourth quarter. First-quarter mortgage banking income totaled $$1.263 billion, improving from a negative $540 million in the fourth quarter (reflecting the Fannie Mae settlement), but declining from $1.612 billion in the first quarter of 2012.


Bank of America said its litigation expenses totaled $881 million during the first quarter, compared to $916 million the previous quarter and $793 million a year earlier. First-quarter litigation expenses included $500 tied to a settlement of a class action suit by mortgage-backed securities investors against Countrywide, which Bank of America acquired in 2008.

Credit quality continued to improve, with first-quarter net loan charge-offs of $2.517 billion, declining from $3.104 billion the previous quarter and $4.056 billion in the first quarter of 2012. The first-quarter annualized ratio of net charge-offs -- excluding impaired purchased loans, which had previously been written down -- to average loans improved to 1.14%, from 1.40% the previous quarter and 1.80% a year earlier.

Sterne Agee analyst Todd Hagerman has a neutral rating on Bank of America, and said in a note to clients on Thursday that the bank's legacy mortgage-related expenses were "a stubborn sore spot."

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