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EDITORIAL NOTE: No way out. Whether or not there will be criminal prosecutions, the vapor BOA and other banks claim as assets is about to disappear like steam in the night. They don’t own the mortgages, they have few if any claims to receiving money from the borrowers, and the mortgages themselves are either enforceable or uncollectible. The fact that people are paying is not an indication of the validity of the note and mortgage.

Bank of America Profit Drops Nearly 36%


Bank of America reported a nearly 36 percent drop in first-quarter earnings on Friday, as the nation’s biggest bank continued to battle the legacy of the mortgage crisis and legal problems linked to the ill-fated acquisition of Countrywide Financial.

Although Bank of America’s loan portfolio showed some improvement in recent months, the bank lost $2.4 billion in its consumer real estate group, compared with a $2 billion loss the previous year. The poor results in home lending were partially offset by a $2.2 billion release of reserves and strong earnings from the bank’s credit card business.

After another disappointing quarter, the bank decided to shakeup its management team and create a new position focused on legal and regulatory problems.

Bank of America, facing a prolonged reckoning in its mortgage business, has yet to shake the wide-ranging legal woes surrounding Countrywide, the former subprime lending giant. The bank put aside another $1 billion in the first quarter to cover claims from scorned investors who want the firm to repurchase billions of dollars in bad mortgages. The bank also reported a spike in repurchase requests from Fannie Mae and Freddie Mac, the government controlled mortgage companies that already received some $3 billion from the bank last year.

The bank did take a step toward resolving complaints from mortgage-bond insurers, announcing on Friday a $1.6 billion agreement with Assured Guaranty Ltd., which guaranteed several mortgage-bond deals backed by Countrywide loans.

There were some bright spots for the bank. The bank’s credit card business saw income rise by 77 percent to $1.7 billion. Commercial banking reported a profit of $923 million, compared with $703 million in the same period of 2010. The investment banking operation reported strong results, as well, on the back of improved sales and trading revenue.

With overall earnings of $2 billion, or 17 cents a share, the bank still missed analysts’ estimates of 27 cents a share. Bank of America earned $3.2 billion, or 28 cents a share, in the same period a year earlier.

Total revenue dropped, too, to $27 billion from $32 billion, a decline partly attributable to the weak economic recovery. As consumers cling to their cash amid uncertain times, mortgage lending has stalled at Bank of America and other giant lenders. The bank, facing new government regulations, also missed out on millions of dollars in overdraft fees and other charges once levied on consumers.

The bank’s shares were down more than 1 percent in Friday morning trading.

Still, the quarterly profit can be seen as an encouraging sign for the bank after it recorded two straight quarterly losses totaling $8.5 billion.

“Strong growth in deposit balances and positive contributions from five of our six businesses reflect the steady improvement in the broader economy,” the bank’s chief executive, Brian T. Moynihan, said in a statement. “Our customer-focused strategy is working well, and we also benefited from improved credit quality.”

Bank of America is the second big financial firm to unveil first-quarter figures this week. JPMorgan Chase reported a record $5.6 billion quarterly profit on Wednesday, with the bank facing similar problems in its home lending unit. Other industry giants like Citigroup, Goldman Sachs and Wells Fargo are set to report earnings next week.

Bank of America’s report comes at a crucial time for the company, which is hoping regulators will approve a plan to increase the bank’s token 1 cent dividend. In March, the Federal Reserve nixed the bank’s proposal to raise its shareholder payouts in the second half of 2011. The bank said on Friday that it would try again, although it would not say when and analysts are skeptical of its chances.

“I think, eventually, the bank will have to back off,” said Marty Mosby, an analyst at Guggenheim Securities, a brokerage firm.

As the bank seeks to shed the legacy of the financial crisis, a nagging problem stands in the way: Countrywide. Bank of America bought the subprime lender for $4 billion, or roughly $4.25 a share, in July 2008.

Now, Countrywide has opened the bank’s giant mortgage business to attacks on multiple fronts.

Institutional investors want Bank of America to repurchase billions of dollars in soured mortgage securities sold by Countrywide at the height of the crisis. The bank already doled out some $3 billion to Fannie Mae and Freddie Mac, the government-controlled housing finance giants, to cover claims that Countrywide’s underlying mortgages did not meet underwriting standards.

The payout was part of $4.1 billion Bank of America set aside for such claims in the final quarter of 2010. The bank has said it could spend anywhere from $7 billion to $10 billion buying back troubled loans.

Bank of America also is among several firms ensnared in state and federal investigations into fraudulent foreclosure practices. The bank and 13 other firms signed an agreement with federal banking regulators on Wednesday to overhaul their foreclosure operations and adopt new oversight procedures.

But the bank and its peers still face demands from state attorneys general to make additional concessions and approve a multibillion-dollar settlement. The various investigations “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs,” Bank of America said in its 2010 annual report.

JPMorgan and other Wall Street titans face similar liabilities, although Bank of America’s mortgage woes set it apart. The bank, for instance, compared with its competitors, has many more loans on its books that have soured, according to a recent report by Oppenheimer & Company. It also is unclear just how much legal liability the bank ultimately will face, an uncertainty that continues to plague its bottom line.

“With Bank of America, you’ve got this special asterisk: There’s no precedent to judge their exposure,” said Chris Kotowski, an analyst at Oppenheimer. “If not for that, I would be recommending the stock.”

Bank of America announced on Friday that it hired Gary Lynch, formerly of Morgan Stanley, to a newly-created post focused on legal and regulatory problems. The bank also said that its chief financial officer, Charles Noski, will leave his post after only a year to tend to “a serious illness of a close family member.” Mr. Noski, who will be replaced by the bank’s current chief risk officer, will remain at the company as vice chairman.

The bank last quarter also was having some trouble generating new loans, as revenue decreased to $2.2 billion this year from $3.6 billion in the first quarter of 2010. JPMorgan’s loan numbers were down, too, as banks tightened their underwriting standards and consumer tightened their belts.

“While loan growth tends to be seasonally weak in the first quarter, this quarter is tracking worse than seasonality would suggest,” a Barclays Capital analyst, Jason Goldberg, said in a recent report.

In the face of its mortgage woes, the bank did report some encouraging news about its loan portfolio. The bank’s net charge-offs for the quarter came in at $6 billion, compared with $10.8 billion a year ago. There was also a modest drop in nonperforming loans, which fell 14 percent to $31.6 billion.

The bank’s merger with Merrill Lynch, another marriage forged amid the financial crisis, has fared far better than its takeover of Countrywide. The global wealth management group, which includes Merrill, reported record revenue of $4.5 billion, versus $4 billion a year ago. Earnings rose more than 22 percent.

“There’s a nice feel to how Merrill is coming in,” Mr. Mosby said.

16 Responses

  1. Had to get a new car recently. Was apprehensive about getting financing due to my foreclosure issue. Sitting in the the credit office of one place, we were waiting on an approval phone call or email and got to talking to the “finance manager” about foreclosure, credit scores, and so forth.

    The talk turned to securitization, and this finance manager just came out with the fact that only paper was being traded, if that, i.e., no actual money is or was changing hands. I would have expected the finance manager to be a big cheerleader for “personal responsibility” and “paying your bills on time” but he was very aware of the fraudulent, fake nature of the “finance” game.

    In fact, he was of the opinion that credit scores were garbage in that they can’t and don’t accurately predict if or how a person will pay. He recounted a story about a woman for whom he obtained financing but who never paid any of her “creditors,” yet who had a higher credit score than the finance manager himself.

    So if this finance manager of a single used car place in Nowhere, USA knows that our entire system of “finance” is based on fraud and vapor, it more than stands to reason that the people at the top who maintain and enforce the finance system ALSO know it’s based on fraud and vapor.

    To me, that makes all this hand-wringing about how the banks and the current finance system need to be saved or the world will end even more outrageous. That is, they know damn well that if we just call off the game, there will not be catastrophe. It’ll just mean the game is over, and that’s all.

  2. Many not “getting” the “investor” fraud – that is, by the investors themselves. The victims are not the pension fund investors who wrongly invested in high risk derivative CDOs. Sorry, but these guys could not expect to continue to profit from high interest rates that could not be justified. On the hierarchy of investment strategies — CDOs are risky and not suitable for pension investment. Relied on triple A ratings? At your sophisticated risk. But, “investor” fraud goes beyond security investors. .

    The victims are the homeowners whose fraudulent loan is the hands of undisclosed “investor” debt buyers. Yet investigations continue as to investor rights — which — in my opinion — support their right to enforce action against homeowners.

    Investors were not defrauded — they were, in most cases, in proprietary relationships with banks that, in conjunction, created the abuse in the first place.


    Definitely applicable — but not the insurance fraud I refer to. Referring to insurance fraud while loans are earmarked to a trust. Manufactured defaults, PMI and other insurance kicks in – and loan collection rights sold at discount. Trusts not paid off by refinance — refinance is only modification of already classified charged-off default debt – and by false insurance claims.

    Oh – and those FDIC Receiverships — who failed to claim their affiliation? That is before assets sold to new buyers of failed banks. Who failed to show their affiliation?? Thus, escaping receivership/bankruptcy. And, what did they take with them??

    THE A MAN — When will it matter?? Not until all cards are on the table — and good possibility — that may never happen. But, hopeful it will. Just need to get off the “investor” focus — a distraction just as bad as homeowners “bought too much house.”

  3. Bank of America also is among several firms ensnared in state and federal investigations into fraudulent foreclosure practices-

    You Just Don’t Get It …Really ! What You Think You See Is What You Want To Believe. . . . Really, And You Believe That Which You See – Who, BAC??? Foreclosing??? – – Or Recon NA??? …..Recon….Oh Sheila??? ……BAC…..Recon…..NA??? Tell Me It Ain’t So ….Tell Me!

    Bad Sir – really Bad

  4. E Tolle & Anonymous,

    on the vidieo link by E Tolle,

    Spilzter and Matt still talk about bad mortgages packaged and sold……

    But THEY do not get into the whole scam of MBS, RMBS, land titles, etc.

    When will they get into this?

  5. When will anyone get this??????
    you cant ask that question with a straight face.
    EVERYONE gets its it [or got it].
    what you should be asking is,,
    when will it matter?

  6. Anonymous, of course you’re right, and I too have been dumbfounded by this scenario.

    If you caught Karl Denninger today, you saw where BAC is stuck for a clawback of $1.6 billion. But the same agreement stipulated a $6+ billion in future outgoes. Total insolvency….

    Chris Whalen is still calling for a total major bank meltdown in 2011, due to pretend FASB and blatant fraud.

    But back to your point, it’s mirror images as far as I can tell. What befalls investors befalls homeowners, and yes, there may be a totally different way of unwinding these crimes, but they do need to be unwound. Securitizations all have a roadmap, albeit a zigzag trail at times.

    JPMC needs to pay for their crimes. BAC needs to be held accountable. GS, Satan’s official agent on Earth, should be tortured non-stop until the cows come home.

    Elliot Spitzer said on CNN, and I quote, “Geithner went around to prosecutors saying, “Don’t bring cases, it will rattle the markets.”

    That’s a crime! I don’t care whether you’re a banker or a homeowner….to obstruct justice is a crime. Timothy Geithner should be investigated for high crimes and treason. Spitzer said, “Being wrong is not a crime, lying to people is.”

    It’s now painfully obvious that Geithner has sacrificed average Joes, Marys, Debbies, for Moynihans, Blankfeins and Dimon. He’s so concerned with rocking the world of finance, that he doesn’t see that the wheels are already off of the engine that truly runs the economy i.e. PEOPLE.

  7. Anonymous,

    What do you think?


    Sec. 4905. Disclosure requirements for lender paid mortgage insurance (LPMI)

    (c) Notices to mortgagor

    In the case of lender paid mortgage insurance that is required in connection with a residential
    mortgage transaction–
    (1) not later than the date on which a loan commitment is made for the residential mortgage transaction, the prospective mortgagee shall provide to the prospective mortgagor a written notice

    (B) that lender paid mortgage insurance–
    (i) usually results in a residential mortgage having a higher interest rate than it would in the case of borrower paid mortgage insurance

    (C) that lender paid mortgage insurance and borrower paid mortgage insurance both have benefits and disadvantages, including a generic analysis of the differing costs and benefits
    of a residential mortgage in the case lender paid mortgage insurance versus borrower paid mortgage insurance over a 10-year period, assuming prevailing interest and property appreciation rates;

    References in Text

    The Truth in Lending Act, referred to in subsec.(c)(1)(B)(ii), is title I of Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which
    is classified generally to subchapter I (Sec. 1601 et seq.)

    Subchapter 1 Part A- General Provisions Sec. 1611

    Sec. 1611. Criminal liability for willful and knowing violation
    Whoever willfully and knowingly
    (1) gives false or inaccurate information or fails to provide information which he is required to disclose under the provisions of this subchapter or any regulation issued thereunder,
    (2) uses any chart or table authorized by the Board under section 1606 of this title in such a manner as to consistently understate the annual percentage rate determined under section
    1606(a)(1)(A) of this title, or
    (3) otherwise fails to comply with any requirement imposed under this subchapter,

    shall be fined not more than $5,000 or imprisoned not more than one
    year, or both.

    Is this your insurance fraud? I was never disclosed an LPMI notice.

    My PSA counts 3950 Neg AM loans. Take away 300 loans per 1000 averages approx. that don’t have an LPMI = 2750

    If none of these borrowers were given a notice of the LMPI or the additional LMPI would that be fines of 13750000 or 2750 years in jail?

  8. E. Tolle

    Thank you for the video. My problem is this — and no one has been able to explain — why is the investigation focused on fraud against “investors.”

    The bottom line is same old underlying media premise that the homeowners are to blame for the bad investments that the likes of Goldman (fraudulently) capitalized upon.

    I see absolutely no criticism of the real targets of Goldman – and others — for their scam — AGAINST THE HOMEOWNERS. Where is the outrage for the fraud against the American public — the homeowners???

    Granted – fraud on investors — but the so-called investors were also investing in high risk derivative CDOs — they should have know better. The people??? they were NOT sophisticated investors — they were the victims upon which the investment fraud was perpetrated. They remain victims. They are the ones losing their homes that have been extorted. The homes were the SOURCE of the fraud.

    When will anyone get this??????

  9. Spitzer not Spencer

  10. Anderson Cooper, Matt Taibbi, and Elliot Spencer discuss Lloyd Blankfein and friends doing the chorus line perp walk instead of God’s work, as well as the abject fear that Congress has about going against their campaign slushers.

    Their choice is simple, do the right thing, or take a huge bribe…uhm…campaign contribution. They just can’t seem to bite the hand that grafts them. Can you blame them? Yes, most assuredly!


  11. Problem — investigations are weak — to say the least. This is because investigators are NOT speaking to the right source — homeowners.

    The A Man — like your “law of diminishing returns” — analogy — Once an important economic theory — it has been completely disregarded.

  12. All of Moynihan’s public responses are so ridiculous that whatever he is smoking I want some too!

  13. Bank of America this.
    Bank of America that.

    What is Bank of America? It’s flesh and blood people running a business.

    There’s a Board of Directors, CEO, CFO and others.

    It’s about time, instead of big bonuses, we see a shake up of the greedy people and the people on Wall Street, the monsterous people that rewarded the people running Bank of America for being greedy, punish the people running Bank of America for not being ethical.

    In my opinion, anyone who banks with a business that is on the news for fraud, should not complain when the fraud finally faces them. Their continued business supported the fraudulent activities.

    We are partially accountable for our actions when we enjoin and participate with people running a business like that; when we keep our bank accounts with these people or purchase new mortgages with them.

    There are some banks that will always be on my list from here on out.

    Light and Love.
    no signature this time.

  14. What’s that? Mozillo is going to jail? Nahh.

  15. Law of diminishing returns

    The tendency for a continuing application of effort or skill toward a particular project or goal to decline in effectiveness after a certain level of result has been achieved.

    Too Big too fail really means the bigger they are the harder they fall

    Our politicians may be dumb but not the American People.

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