DAVOS, Switzerland Bank of America Corp. Chief Executive Officer Brian Moynihan said that cleaning up the mortgage mess from the bank’s Countrywide Financial Corp. takeover was like mountain climbing with an excessively heavy backpack.
“As we look left and right, we’re right with the other climbers, in terms of competitiveness and how we approach the market,” Moynihan told Bloomberg Television’s Erik Schatzker in an interview Friday at the World Economic Forum. Rivals aren’t “working as hard as we are,” he said. “They have a CamelBak and a water, and we have a 250-pound backpack.”
Bank of America, the second-biggest U.S. lender, has booked more than $40 billion in costs tied to refunds and litigation from defective mortgages and foreclosures, including an $11.7 billion settlement with Fannie Mae this month. Doing so has meant a lighter burden for the Charlotte-based bank this year, Moynihan said.
“I’m fully confident that we’ve taken enough out that we’ll start to propel through the competition,” Moynihan, 53, said. “Our earnings power is there every day; it gets covered up. In 2013, we just have to produce more earnings.”
His job will be aided by an improving U.S. residential real estate market. The lender’s 60-day delinquencies are declining, housing prices are rising and excess home inventories are “worked through,” he said.
Moynihan, criticized by investors in 2011 for saying that Fannie Mae claims were behind it after a partial settlement that year, was asked by Schatzker to compare his firm’s handling of the mortgage mess to the inning of a baseball game.
“I never like analogies like that because you never know if it goes in extra innings,” Moynihan said.
Market disruptions may occur if interest rates surge, Moynihan said in the interview, which followed an appearance on a Bloomberg Television panel with financial executives and government officials. Bond prices will decline as rates go up, which should be manageable for long-term investors who matched holdings against future liabilities, Moynihan said.
“It’s more the worry that if rates move too fast, it will cause shocks in the system,” Moynihan said. “I’m not sure it’s a high probability, but we worry about it.”
The economy’s underlying fundamentals are improving and bankers have plenty of funds to lend, Moynihan told the Davos panel. “We’re sitting on tremendous liquidity in our industry,” he said.
Bank of America told investors earlier this month it’s counting on “a slow-growth but healthy economy” this year. While central banks have been providing support with low rates, the more fundamental issue for nations is to regain their competitiveness, Moynihan told the panel.
Moynihan has spent his first three years at the helm cleaning up after his predecessor’s takeover of Countrywide Financial and Merrill Lynch & Co., divesting more than $60 billion of assets in the process.
The company announced an $11.7 billion deal to end disputes with Fannie Mae on bad home loans this month and joined an $8.5 billion industry accord to compensate for abusive foreclosures.
“Credit was restricted for a while, but in things like the mortgage area in the United States, it had to be restricted because this is what helped open the problem up,” Moynihan said. “So there’s more conservative underwriting built in.”
Moynihan said Europe has been addressing its sovereign-debt crisis since last year’s Davos conference.
“From a year ago, where the thought was, ‘This might break up,’ to a year where the structures and strategies are in place and actually working is a much different place,” Moynihan said.
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