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Investors worry as Bank of America posts $9.1 billion loss

NEW YORK — Things keep getting worse for Bank of America.

On Tuesday, the largest U.S. bank reported a loss of $9.1 billion during the second quarter, mainly due to an $8.5 billion settlement with investors. That agreement, reached in June, settled claims that the bank had sold the investors poor-quality mortgage bonds. The bank had already announced several other settlements this year. The total so far to settle investor claims: $12.7 billion.

The large settlements and protracted losses related to mortgage loans are causing investors to worry about something bigger: Bank of America's overall financial strength. In a conference call to discuss the earnings report, analysts grilled the bank's executives.

At the top of their list of concerns is whether the bank will need to raise more money to comply with new international requirements that large banks hold more capital. If Bank of America needed to boost its capital reserves, it might look to raise more money by issuing more common shares of its stock. That would dilute the value of stock owned by current shareholders.

The stock is already down more than 35 percent for the year, and it is the only large bank whose shares trade below $10 per share.

Bank of America CEO Brian Moynihan tried to ease those worries. He said that the bank's finances were stronger between March and June than they were in the same period last year.

"Investors are clearly not convinced that Bank of America is in a comfortable position financially," said Shannon Stem, financial services analyst for Edward Jones, a financial advisory firm. "The margin of safety is clearly lower than at other banks, which leaves them more exposed to an economic slowdown or shock to the financial system."

Investors already had cause for concern. In addition to the huge settlements, in March, the Federal Reserve didn't allow Bank of America to increase its dividend, citing uncertainty about the depth of its mortgage problems. It was the only denial issued among the four largest U.S. banks.

In the quarter, the bank set aside an additional $1.9 billion to fight litigation from investors. That brought the total mortgage-related charges in the second quarter to $20.7 billion. The bank does not disclose the total amount that it has in reserve for litigation costs.

The bank's revenue declined 54 percent to $13.2 billion from $29.1 billion in the same period last year. Excluding charges related to investor settlements, Bank of America Corp. earned $3.7 billion, or 33 cents per share. That compares with net income of $3.1 billion, or 27 cents a share, in the same quarter last year.

One bright spot for the quarter: More of the bank's customers paid loans on time. That led to a 60 percent decline in the amount of money the bank puts aside for credit losses from last year. Loan losses in its consumer businesses dropped for the fifth consecutive quarter.

.Fast facts

Other bank earnings

• Wells Fargo & Co., the nation's largest mortgage lender, reported Tuesday it earned $3.73 billion in the second quarter, a 30 percent leap from a year earlier, boosted by the release of a big chunk of the money set aside to cover defaulted loans and foreclosed mortgages. But the San Francisco bank reported a sharp decline in the number of new mortgages it wrote, reflecting the ongoing weakness in the housing market and a drop in refinancing activity.

• Goldman Sachs more than doubled its profit last quarter, to $1.05 billion, but even that wasn't enough to satisfy its investors. The results announced Tuesday came in well below what analysts were expecting because of a sharp drop in bond and currency trading. The 63 percent slump in that business from the previous quarter was much worse than the declines of 18 percent and 20 percent at rivals JPMorgan Chase and Citigroup. Goldman attributed the decline to investors being nervous about global economic issues.

Investors worry as Bank of America posts $9.1 billion loss 07/19/11 [Last modified: Tuesday, July 19, 2011 10:33pm]
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