REUTERS - Bank of America Corp’s (BAC.N) fourth-quarter profit dropped after it took some $5 billion of mortgage-related charges, but the second-largest U.S bank showed signs that it was moving past its problems as it shrank the group that deals with its troubled home loans.
The Charlotte, North Carolina-based bank also made more home loans during the quarter, with its mortgage volume rising 42 percent from the fourth quarter of 2011. That lending helped the second-largest U.S. bank earn $732 million, or 3 cents a share in the quarter, compared with a profit of $2 billion, or 15 cents per share, in the same period in 2011.
Bank of America said it began slashing employees in its mortgage servicing unit, which helps borrowers behind on their payments, and said it would cut more jobs as delinquencies decreased. The mortgage servicing unit’s total employees fell by 3,000, or 7 percent, from the third quarter, and the bank also shed 6,000 - or 35 percent - of its contractors.
“We put a lot of risk behind us in 2012,” Chief Financial Officer Bruce Thompson said on a conference call with reporters.
The bank, however, still needs to finalize a settlement with private mortgage investors, faces litigation with mortgage insurers and has been sued by the U.S. Justice Department over loans it sold to Fannie Mae and Freddie Mac FMCC.OB.
Most of the bank’s mortgage troubles stem from its 2008 purchase of subprime lender Countrywide Financial. So far it has taken more than $40 billion in losses on legal settlements and requests to buy back soured loans that it sold to investors during the housing boom.
Bank of America said on January 7 its fourth-quarter results would include a litany of one-time items, including more than $5 billion in mortgage-related charges, a $1.3 billion tax benefit and a $700 million charge related to the value of its debt.
Even with those charges, results beat analysts’ average expectations of 2 cents a share, according to Thomson Reuters I/B/E/S.
The bank’s results were boosted by setting aside less money for bad loans in the quarter, $2.2 billion compared with $2.9 billion a year earlier. Bank of America also saw investment banking fees climb 58 percent from a year earlier.
In 2011, Bank of America launched a broad cost-cutting program to eliminate $8 billion in annual expenses by mid-2015. The bank’s expenses declined to $18.4 billion in the quarter from $18.9 billion a year ago, excluding goodwill impairment charges in the year-ago period.
Bank of America’s charges included $2.5 billion for its share of an $8.5 billion settlement with large banks over foreclosures and $2.7 billion for agreements with Fannie Mae FNMA.OB over soured loans the bank sold the finance company and for delays in processing foreclosures.
The bank’s results showed that it still has a way to go to match its healthiest competitors. Wells Fargo made $5.1 billion in the quarter, while JPMorgan earned $5.7 billion.
Reporting By Rick Rothacker in Charlotte, North Carolina; Editing by Jeffrey Benkoe and Maureen Bavdek