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Bank of America earns $2.25 billion, below expectations

Bank of America on Wednesday reported another quarter of cutting costs and settling lawsuits, but it failed to deliver the earnings that analysts had hoped for.

Instead, the first-quarter results were a familiar mix of up and down as the Charlotte bank struggles to dig out from the mortgage woes of the past while trying to prove it can build back its profits elsewhere.

Bank of America earned $2.25 billion for shareholders in the first quarter, or 20 cents per share. That was several times higher than the same period a year ago, but missed analysts’ expectations of 23 cents per share.

Mortgages weighed on the bank’s results on all sides. Bank of America lost $1.3 billion in its unit dedicated to servicing delinquent loans, most of which came from the bank’s 2008 acquisition of Countrywide Financial Corp.

Bank of America also reported a $500 million agreement to settle class-action lawsuits related to mortgage-backed securities issued by Countrywide.

At the same time, the bank made less money on the new mortgages it originated in the quarter, despite a significant uptick in the number originated. Chief Financial Officer Bruce Thompson said that’s because current rates have made each mortgage it sells less profitable.

The bank’s shares closed down about 5 percent, at $11.70, as investors reacted to the news.

“They appear to be totally absorbed by the company’s litigation issues and, at the moment, believe that there are major losses likely that have not been reserved for,” Rafferty Capital analyst Dick Bove wrote in a research note. He, however, took a more positive view of the results. “This is pushing the stock lower, providing a reason to buy.”

Bank of America CEO Brian Moynihan again said the bank is making progress. Commercial loan balances were up, and credit quality improved, he told investors in a conference call.

Bank of America also said its expenses fell $1 billion from a year ago, which it attributes to its cost-cutting plan known as Project New BAC. The bank said Wednesday it cut more than 4,000 jobs in the first quarter. Most were in the unit that services troubled loans.

The bank said delinquent loans fell by more than 100,000, which Thompson said came through its work with customers to modify loans.

On the whole, “there was disappointment with the headline number, but all the ‘ingredients’ of the quarter looked good,” Nancy Bush, contributing editor at SNL Financial, said on the conference call.

Bank executives also touted the mortgage-backed securities settlement, which would cover securities with a principal balance of $350 billion. Thompson said that eliminates 70 percent of the outstanding balances where litigation had been threatened or filed.

Bank of America’s earnings had largely been wiped out in the previous two quarters by massive legal settlements. In the third quarter, Bank of America paid $2.4 billion to settle a shareholder lawsuit connected to the bank’s 2008 acquisition of Merrill Lynch.

Three months later, the bank agreed to pay about $13 billion in two separate mortgage-related settlements.

Bank of America earned $328 million for common shareholders, or 3 cents per share in the first quarter last year. The results, however, were marred by $4.8 billion in accounting losses tied to the increasing market value of the bank’s debt.

Dunn: 704-358-5235 Twitter: @andrew_dunn
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