This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

BAC Sees $7.2B Drop in Mortgage Service Expenses

NEW YORK ( TheStreet) -- Recent comments by Bank of America (BAC - Get Report) CFO Bruce Thompson back up the higher valuation investors place on the company over Citigroup (C - Get Report) and JPMorgan Chase (JPM - Get Report).

Following a meeting with Thompson, KBW analyst Christopher Mutascio on Sunday in a note to clients wrote that Bank of America's "Management expects Legacy Asset Servicing costs to fall from $2.3 billion in 2Q13 to below $2.0 billion per quarter by 4Q13." The fourth-quarter estimate is lower than the $2.1 billion Thompson estimated during Bank of America's second-quarter earnings call on July 17.

Legacy Asset Servicing (LAS) refers to the servicing of problem mortgage loans and maintenance of repossessed real estate, with the "Legacy" mainly being that of Bank of America's ill-timed and ill-fated purchase of Countrywide Financial in 2008.

"From there, management expects the quarterly run rate to fall to $1.0 billion by 4Q14 and normalize to $500 million per quarter by 4Q15," Mutascio added. "So, between 2Q13 and 4Q15, management expects Legacy Asset Servicing costs to decrease $7.2 billion on an annualized basis."

Those are remarkable figures. While the cost savings will mainly consist of depressing rounds of layoffs, it is important to point out that the LAS staff has ballooned in order for Bank of America to work through an epic number of nonperforming mortgage loans.

CEO Brian Moynihan's "Project New BAC" efficiency program was initiated in 2011, with a goal of lowering the company's annual expenses by $8 billion. According to Mutascio, "Management expects to hit [a] $6 billion (of the total $8 billion) run rate by 4Q13. On a quarterly basis, [this] means the expense save run rate should be $1.5 billion by 4Q13 with an additional $500 million in quarterly cost saves coming by 4Q14."

So Moynihan's multiyear "normalization" for Bank of America can be expected to pretty much be completed by the end of 2015. The company's $8.5 billion settlement of Countrywide mortgage repurchase claims by private investors is still being contested by some investors, but the entire amount was reserved for during the second quarter of 2011, meaning that even a modified settlement is not expected to greatly increase Bank of America's expenses.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.55 -1.60%
C $46.28 -0.96%
JPM $63.21 -0.61%
WFC $50.05 -0.71%
AAPL $93.75 -1.10%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs