BofA Putbacks May Cost $8.5 Billion; Lawyers `Smell Blood,' Kotowski Says
Brian T. Moynihan, CEO of Bank of America
Brendan Hoffman/Bloomberg
Brian T. Moynihan, chief executive officer of Bank of America Corp.
Brian T. Moynihan, chief executive officer of Bank of America Corp. Photographer: Brendan Hoffman/Bloomberg
Jan. 21 (Bloomberg) -- Brian Moynihan, chief executive officer of Bank of America Corp., talks about the company's fourth-quarter loss reported today and outlook. The largest U.S. bank by assets reported a loss of $1.24 billion, or 16 cents a share, as it boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit. Excluding a goodwill charge, adjusted net income was 4 cents a share, less than the average estimate of 21 cents by 24 analysts surveyed by Bloomberg. Moynihan speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Bank of America Corp., the biggest U.S. lender, may book an $8.5 billion charge on costs to resolve disputes over faulty mortgages, a figure at the upper end of the range the company gave last week, according to Oppenheimer & Co.
The cost to settle demands from private investors on home loans could be as low as zero and the upper end is $7 billion to $10 billion, the firm said last week in a slide show. The bank may take a charge in this year’s fourth quarter, and costs may expand with lawyers “smelling blood in the water,” Christopher Kotowski, an Oppenheimer analyst, said yesterday in a note.
“We do not believe that management would put a number like this into a presentation unless they thought there was a reasonably good chance that this will be the ultimate price- tag,” Kotowski said. “While that amount could be absorbed, we fear that this becomes the starting point in negotiations for the other side, capping upside on the stock.”
Bank of America, which posted a $1.24 billion loss for the last three months of 2010 on costs to end other mortgage disputes, is battling accusations that investors were duped into buying or insuring loans issued with overstated property values and inflated borrowers’ incomes. The bank paid $2.8 billion to U.S.-owned mortgage financers Fannie Mae and Freddie Mac late last year, leaving demands from private investors as the main concern of shareholders.
The lender slipped 33 cents, or 2.3 percent, to $13.92 at 4:15 p.m. in New York Stock Exchange composite trading. The company has dropped about 6.6 percent in the past year.
‘Possible Range’
An $8.5 billion charge would constrain tangible book value growth to about 4 percent this year, said Kotowski, who has a “perform” rating on the Charlotte, North Carolina-based bank. Most of the demands that the bank buy back its loans stem from the 2008 purchase of Countrywide Financial Corp., once the largest U.S. mortgage lender.
“Were it not for Countrywide and the private-label put- back issue, we would be recommending the stock,” Kotowski said.
The loss estimate is a “possible range, not a probable range,” Chief Financial Officer Charles Noski told analysts on a Jan. 21 conference call. Resolving the demands, which face higher hurdles than requests from Fannie Mae and Freddie Mac, may take a few years, Chief Executive Officer Brian T. Moynihan said last week.
The putback costs will likely result in $6 billion to $8 billion in charges, Paul Miller, an analyst at FBR Capital Markets, said today in a research note. Miller has an “outperform” rating on the company.
“While this is clearly an overhang on the stock, we believe the “doomsday” scenario is essentially off the table,” Miller said.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
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