Bank of America story updated from 9:41 a.m. with additional details throughout.
While CFO Bruce Thompson said during Wednesday's first quarter earnings call the reserve build was "mortgage-related" and "for matters we've disclosed previously," he said it was not related to a so-called article 77 case involving litigation over problem mortgage backed securities. Nor was it tied to disputes with monoline bond insurers.
While Bank of America announced a $3.6 billion charge tied to a more than $9 billion settlement with the Financial Housing Finance Authority and another deal with monoline bond insurer Financial Guaranty Insurance Co., both over problem mortgage backed securities it sold, the bank already had sufficient reserves to cover those payments.
Asked whether the $2.4 billion increase would add to a "range of possible losses" the bank discloses quarterly, Thompson said the bank hadn't yet made a determination.
Asked whether the reserve build related to a new settlement the bank might be announcing soon, Thomson demurred.
"I wouldn't interpret or necessarily assume that the build in the reserve suggests a settlement is imminent," he said.
The disclosure led to criticism from CLSA analyst Mike Mayo, a persistent skeptic of Bank of America's ability to resolve its legal problems tied to mortgages who has admitted in the past to being overly bearish on the issue.
"The Bank of New York ruling was good. I did not expect that. But you still had a $6 billion charge this quarter and another $2.4 billion extra charge in the last 15 workdays since the FHFA amount was announced And I know you've had several questions on the call, but what's left as far as potential legal charges, because it seems just so lumpy and if in just a few weeks you can have another $2.4 billion charge seemingly out of the blue for some of us, what's left?"
In response, Thompson stated "we give fairly fulsome disclosure in the 10-K as it relates to the matters that are out there." He then listed several disputes the bank has settled lately and added that "it largely with what's disclosed leaves you with respect to one monoline and in addition to the monoline the other legacy mortgage related matters that we've put out in our disclosure"
The monoline is presumably Ambac Financial Group (AMBC), which according to Bank of America's 10-K filing claims damages "in excess of $2.5 billion" in one of two disputes with Bank of America and does not specify damages sought in the other.