Bank of America Expenses Up on Legal Costs

Updated from 9:14 a.m. ET with additional details and comments from the bank's conference call throughout.

NEW YORK ( TheStreet) -- Bank of America ( BAC), saw a rise in legal expenses in the third quarter that threatens to undercut the bull thesis on the stock.

Expenses rose $371 million to $16.389 billion from $16.018 billion in the previous quarter.

Litigation expenses were $350 million, up from $100 million in the prior quarter.

Analysts are counting on billions of dollars of cost saves from Bank of America over the next couple of years. Evercore analyst Andrew Marquardt had estimated expenses would fall to $15.54 billion in the quarter.

Following a meeting with Bank of America CFO Bruce Thompson in December, Second Curve Capital investor Tom Brown had predicted Bank of America would save $18 billion over three to four years.

Analysts jumped on the issue immediately during a conference call Wednesday, with the first question, from Credit Suisse analyst Moshe Orenbach, asking for estimates of future costs.

"That's obviously still volatile," Orenbach said.

The second analyst on the call, Morgan Stanley analyst Betsy Graseck, also focused exclusively on mortgage-related legal costs in her first two questions.

When Sanford Bernstein analyst John McDonald asked if this quarter or the previous quarter should be viewed as more typical of legal costs going forward, CFO Bruce Thompson wasn't able to offer any guidance.

"It can be lumpy," Thompson said.

Bank of America has either set aside or paid out a total of $40 billion to cover mortgage-related legal costs over the past three and a half years, according to comments by Bank of America CFO Bruce Thompson on the conference call with analysts Wednesday.

Nonetheless, Bank of America bears have warned the bank may face billions in losses above what they believe the market is factoring in. CLSA analyst Mike Mayo, for example, has argued Bank of America is $16-22 billion under-reserved for mortgage litigation.

-- Written by Dan Freed in New York.

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