Closing on a mortgage always seems to cost more than people think. Closing on a mortgage crisis is no different, as is becoming abundantly clear with each new installment of Bank of America financials.
The second-largest U.S. bank by assets continues to disappoint investors because it is still shelling out huge sums to clean up the toxic fallout of Countrywide, a deeply troubled mortgage shop it snapped up as the country’s real estate market was toppling in 2008.
Bank of America spent $881 million on litigation in the first quarter, almost 40 percent of every dollar its real estate unit collected in that period, according to its earnings release this morning, Wednesday, April 17. That’s higher than analysts expected—by a lot. Goldman Sachs anticipated a litigation bill at $400 million; Deutsche Bank pegged it at $500 million.
So what’s a couple hundred million to a lending behemoth like Bank of America? Without the litigation fees, the bank’s profit would have topped Wall Street expectations by 4¢, rather than missing them by 3¢.
The old saying goes: “The lawyers always make money.” That’s particularly germane in this case. Bank of America is forking over most of that litigation cash—$1.8 billion in the past two quarters—to settle charges that Countrywide misled investors about the quality of $351 billion worth of mortgage-backed securities. Seems like a good idea. But the settlements themselves only add up to $500 million. Which means multiples of that amount are being spent hammering out the legal cease-fires and getting them to stick.
And if the payment is approved in court, Bank of America says it will have defused only 80 percent of the threat. Eighty down, 20 to go.