C&B Notes

Imperfect Information

Even for the CEO, it can be difficult to know what is going on in real-time in a large financial institution.

Below is a timeline showing how legal costs swelled, defying Bank of America’s predictions, as investors, insurers and the U.S. demanded the company repurchase shoddy loans.

  • Feb. 26, 2010: Bank of America says the cost of resolving mortgage disputes rose to $1.9 billion in 2009 from $246 million in 2008 on “deterioration in the economy and housing markets combined with a higher rate of repurchase or similar requests.”
  • Oct. 19, 2010: The bank announces an $872 million third-quarter provision to resolve claims.  That compares with $455 million a year earlier, $516 million in the fourth quarter of 2009, $526 million in the first quarter of 2010 and $1.25 billion in the second.  “It’s a half billion, half billion, half billion,” Moynihan says.  “Those are the kinds of numbers that would be more recurring.”
  • Jan. 21, 2011: “We are pleased to put the GSEs behind us this quarter,” Moynihan says.  Then-Chief Financial Officer Charles Noski projects an “upper range” of $7 billion to $10 billion in losses on outstanding demands from private investors.  The loss could be as low as “zero,” he says.
  • June 29, 2011: The bank says it agreed to pay $8.5 billion to resolve claims from the Pimco, BlackRock group on $424 billion of bonds and set aside $5.5 billion more for other demands.  Losses beyond that may be as much as $5 billion, the bank says.  Adjustments on cost estimates are partly the result of fluctuations in home prices, CFO Bruce Thompson says.  “The cost expense and the uncertainty are all taken off the table for half of the private-label claims,” Moynihan says.  Settling is better for the bank because it avoids the “possible outcome of being much more adverse to the company if we kept fighting.”
  • July 19, 2011: Bank of America posts a second-quarter loss of $8.83 billion, the company’s worst ever.  The lender says outstanding mortgage claims are $11.6 billion.
  • Feb. 9, 2012: Bank of America commits as much as $11.8 billion, including a cash payment of $3.24 billion, as one of five lenders in a $25 billion settlement with states and the federal government to end a probe of abusive foreclosure practices.
  • Oct. 17, 2012: Moynihan’s company says losses could be as much as $6 billion beyond what’s been set aside for demands that it repurchase shoddy home loans.
  • Jan. 25, 2013: Moynihan says cleaning up the mortgage mess from Countrywide is like mountain climbing with an excessively heavy backpack.  “As we look left and right, we’re right with the other climbers in terms of competitiveness,” he says.  Rivals aren’t “working as hard as we are,” he says.  “They have a CamelBak and a water, and we have a 250-pound (113 kilogram) backpack.”
  • April 16, 2014: Bank of America posts a $276 million loss on costs tied to mortgage disputes.  The company announces a $950 million deal tied to securities backed by Financial Guaranty Insurance Co.  The firm says it had $6 billion in legal costs, including $2.4 billion in increased reserves for “previously disclosed legacy mortgage-related matters,” without elaborating on what those are. Shares tumble 2.9 percent to $15.92 at 10:56 a.m. in New York trading.