Bank of America's Kitchen-Sink Fourth Quarter
Bank of America ( BAC) led off a big day for the banking industry, announcing the end of its year-long battle with Fannie Mae ( FNMA), agreeing to pay the government-sponsored mortgage giant $3.6 billion in cash and also repurchase $6.75 billion in mortgage loans that it (or Countrywide Financial, acquired by BAC in 2008) had originated and sold to Fannie before 2008. Bank of America said that the Fannie Mae settlement would be covered by its existing reserves, plus "an additional $2.5 billion (pretax) in representations and warranties provision recorded in the fourth quarter of 2012." Bank of America said that the Fannie Mae settlement would lower its fourth-quarter earnings by $2.7 billion, but the company wasn't through announcing one-time items for the quarter. The company said that the fourth-quarter results would also be "negatively impacted by approximately $2.5 billion (pretax) for the independent foreclosure reviews, litigation (primarily mortgage-related), and other mortgage-related matters." Bank of America also announced that Fannie Mae, Freddie Mac ( FMCC) and Ginnie Mae had approved its plan to sell servicing rights on 2 million residential mortgage loans, with unpaid balances totaling $306 billion. About 232,000 of the loans for which servicing rights will be transferred are past due 60 days or more. The transfer of mortgage servicing rights will "occur in stages over the course of 2013," and Bank of America expects the transfers to "have a benefit over the book value of the mortgage servicing rights of approximately $650 million," with about one half of the benefit being booked in the fourth quarter. The company said that it expects "earnings per share to be modestly positive for the fourth-quarter of 2012," factoring-in a $1.3 billion tax benefit from the recognition of foreign tax credits and "approximately $700 million of pretax negative debit valuation adjustments (DVA) and fair value option (FVO) adjustments related to the continued improvement in the company's credit spreads."