As soon as Bank of America puts one mortgage-related lawsuit behind it, another always seems to rear its head.
The bank announced Wednesday that it would pay $500 million to settle a class-action lawsuit led by pension funds and other investors who say they were misled about $350 billion worth of mortgage-backed investments they bought from Countrywide, a mortgage lender Bank of America bought in 2008. The bank portrayed the settlement as good news because it resolved the bulk of securities claims related to residential mortgage-backed securities.
But financial analysts, in a conference call to discuss the bank’s first-quarter results, peppered bank executives with questions about another pending settlement. Bank of America is waiting for court approval for a similar settlement it made with Bank of New York Mellon almost two years ago. If it doesn’t get the go-ahead, Bank of America could have to spend more to resolve the claims.
Bank of America’s stock slumped nearly 5 percent to $11.70. Though its earnings were just shy of what analysts expected, it was the bank’s latest liability from mortgage lawsuits that “seems to be the big question for investors,” banking analyst Meredith Whitney said on the conference call.
Chief Financial Officer Bruce Thompson told analysts that the bank felt “very good” about settling the pension funds’ lawsuit. But he acknowledged the uncertainty of potential lawsuits and declined to predict how much the bank might have to spend on litigation in the future.
“I don’t think anyone is going to ever, at this point, declare complete victory,” Thompson said, though he added that the bank was moving through “this pipeline of items” in “a pretty meaningful way.”
Bank of America’s current troubles are the latest fallout from its decision to buy Countrywide, which was known for making exotic mortgages that later went bad as borrowers defaulted. The purchase catapulted the bank into a spot at the top of the nation’s mortgage scene, but it’s been an albatross ever since, bringing lawsuits, investigations and quarterly losses. Hard-to-predict legal expenses have been a bane to Bank of America and throughout the banking industry.
It was just last quarter that two mortgage-related settlements overshadowed the bank’s results. In early January, the bank took a charge of $2.7 billion to settle a dispute with Fannie Mae, which forced Bank of America to buy back mortgages it had sold to the agency before the crisis. It also took a $1.1 billion charge to settle government accusations that it and other banks had wrongfully foreclosed on some homeowners. The charges sent fourth-quarter earnings down sharply.