CHARLOTTE, N.C./NEW YORK (Reuters) - Bank of America Corp. said that it expects to take more than $ 20 billion of costs after settling with mortgage bond investors, resulting in a loss in the second quarter.
The sum, which includes a settlement of $ 8.5 billion, removes a question mark which had been hovering above the Bank since October and the shares of Bank of America is concur.
"Investors can now begin y attach a number of these unknown and what they will cost the Bank.". With the scanning of a pen, they have dealt with a large part of these issues, "said Paul Miller, a banking analyst with FBR Capital Markets.
Chief Executive Brian Moynihan is working hard to go beyond the mortgage crisis and this is the last step of this process.
But the large amounts of dollar linked to the establishment and other efforts to clean up the Bank mortgage exposure in recent months could weigh on the Bank's capital levels as most banks are looking to boost the capital and to return the most money to shareholders.
The Bank has been hit hard by toxic mortgages after prior Bank of America CEO Ken Lewis bought the mortgage lender Countrywide Financial in 2008, as the bubble real estate market exploded.
Other banks, including JPMorgan Chase & Co and Wells Fargo & Co, now could pressure to resolve similar allegations, and new proceedings may arise, said analysts.
A group of 22 investors, BlackRock financial management, argued that the obligations that it has bought Countrywide Financial were packed mortgage which should never have been sold. Bank of America bought Countrywide, the largest once U.S. mortgage in 2008.
Bank of America said that excluding such items that regulation, in the second quarter earnings could top the average Wall Street estimate.
CHEVY VEGA
The regulation is the third in six months for BofA, following similar transactions with investors mortgage Government-supported Fannie Mae and Freddie Mac and insurer assured Guaranty Ltd..
In January, the Bank announced its intention to settle with Fannie and Freddie to $ 2.8 billion. In April, BofA revealed a settlement of 1.6 billion with insured warranty.
Last fall, CEO Moynihan said that the Bank would fight all these requests for redemption. He described the talks with investors on the claims as "bare" and said that some investors are looking for a better deal through share repurchases.
Their attitude, Moynihan said, was "I bought a Chevy Vega but I want this to be a Mercedes".
"We are going to protect shareholders against this", he said during the earnings conference call in the third quarter.
But Moynihan struck a different tone on Wednesday, saying that the company was seeking to put the woes of redemption behind it in terms that would be favourable to the BofA shareholders.
"Our job is to eliminate the risk to allow the company to move forward", he said, dismissing suggestions the bank analysts did not fight in the settlement process.
The redemption of shares with investors dispute began last fall, when a group of prominent mortgage holders threatened to sue on the toxic mortgages.
In December, the two sides to avoid a judgment of the Court by agreeing to talks of regulations which have continued since then.
But the agreement comes at a price for BofA. FBR Miller analyst, said that the regulation leaves little margin of error as the Bank is working to meet the new own funds requirements.
Other analysts are less concerned. Mosby Marty of the titles of the Guggenheim, stated that the Bank has 67 billion dollars in capital surplus according to current rules - and $ 26 billion under new rules proposed industry.
During a conference call announcing the settlement, BofA Chief Financial Officer Bruce Thompson said of Bank projects it can replace the capital with compensation through the next two quarters.
Investors largely welcomed the settlement, as shares increased 3% to $11.14 in late afternoon trade.
"The Bank get the disputes and in the banking business, business", said Greg Donaldson, founder of focus on the Evansville, Indiana Donaldson Capital Management, which holds BofA shares. Donaldson, said that the regulation was the best shot he had seen the Bank over the past two years.
Bank of America said that it should show a loss of 88 cents to 93 cents per share for the second quarter.
Excluding special items, it expected earnings of 28 cents to 33 cents per share. Average forecast of analysts was 28 cents, according to Thomson Reuters I/B/E s.
SIX OR SEVEN YEARS
The Bank said charges would include the settlement of $ 8.5 billion with debt investors, 5.5 billion to cover payments to other mortgage bond investors and of $ 6.4 billion in other costs related to mortgages.
Separately, BofA said it would record a gain of $ 2.5 billion in the quarter from the sale of insurance Balboa and a piece of its remaining set of BlackRock.
Call the CFO said Thompson also at the Conference with analysts that the sale and commercial results were higher in the second quarter from a year ago, but less than in the first quarter of 2011.
The settlement still must be approved in court, and of small investors is not part of the original agreement could challenge.
An attorney for the Group of investors, said that the deal was good for all investors. The regulations will be shared by all investors in securities and institutional investors 22 will not receive special benefits, Kathy Patrick, a Gibbs & Bruns LLP Attorney, said in an interview with blog legal Reuters "on the box".
"I badly to see how someone could get more than that in six or seven years of litigation," said Patrick.
Patrick said that Bank of New York Mellon - the trustee for mortgage-backed securities - had played a crucial role in the colony.
Investors have argued that the mortgages packaged in their obligations did not meet their specifications and Bank of America, which collects mortgage payments, was not enough to maximize collections. Part of the regulations includes improvements in the collection of payments, known as maintenance.
"This regulation is likely to encourage the counsel for the other applicant to go after other banks and look for similarities in their securitization transactions," said Nancy Bush, an analyst with Bank veteran.
BofA is still negotiating with a group of State and federal regulatory agencies - including a coalition of all 50 state attorneys general - industry improperly barred on the borrowers offenders allegations.
(Reports by Joe Rauch and David Henry, additional by Brenton Cordeiro in Bangalore and Lauren Tara LaCapra and Dan Wilchins in New York.) (Editing by Lisa Von Ahn, John Wallace, Gary Hill)
