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Re: B of A – With Banks Being Forced To Admit The Inevitable Truth, How Long Will It Be Before Fundamentals Rule The Day Again?

Submitted by Reggie Middleton on 01/21/2011 11:22 -0400

As far back as 2009 (yes, over a year ago) I have been warning
readers and subscribers of the (not so) hidden risks of putbacks,
warranty and rep reserves, and the overly optimistic under reserving of
the big commercial banks. I used JP Morgan as an example (see link list
below), but made it clear this warning stood for several big banks (several of the big banks – As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves, As a matter of fact I said that the banks ‘May Become The “New” Tobacco Companies‘ due to legal risk. This risk was significantly exacerbated the day after making that post, Less
Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking
Industry, The Massachusetts Supreme Court Drops THE BOMB! wherein the Massachusetts Land Court Decision that invalidates foreclosures based on post sale assignments
was up held by the Massachusetts Supreme Court. This is permanent, and
precedent setting, absolutely justifying and vindicating my post from
the day before and clearly demonstrates that The
Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf
2008!

I know many find this to be sensationalist, but they also found the
bombastic posts of 2007 to be sensationalist as well, that is at least
until 2008! We have mortgage situations where the actual BANKS are
walking away from home, see I Warned That Banks Will Soon Be Forced To Walk Away From Homes… Guess What!
Now, tell me how much the mortgages are worth behind abandoned houses –
houses that were abandoned by both the homeowner and the bank? Although
these are minority occurrences, I see them spreading away from the
fringes and closer to the core as the economics of foreclosing on
certain properties makes less and less sense in an increasing number of
situations. All of this ranting and raving is simply to provide a
background for the not so surprising development in the latest Bank of
America quarterly earnings announcement. From Bloomberg: BofA Reports Loss on Costs Tied to Bad Loans, Mortgage Unit:

Bank of America Corp., the largest U.S. bank
by assets, reported a $1.24 billion fourth-quarter loss as it boosted
provisions tied to faulty loans and litigation and wrote down the value
of its mortgage unit. The loss, equal to 16 cents a share, widened from
$194 million a year earlier, according to a statement today from the Charlotte,
North Carolina-based bank. 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.

Brian T. Moynihan,
51, who started as chief executive officer a year ago, booked $12.4
billion in 2010 impairments on credit-card and mortgage units purchased
by predecessor Kenneth D. Lewis. The 2008 acquisition of Countrywide
Financial Corp., then the largest U.S. mortgage originator, has saddled
the bank with lawsuits and demands to repurchase bad loans.

“It’s a kitchen-sink quarter for their Countrywide issues,” said Jason Tyler, who helps oversee $5.5 billion at Chicago-based Ariel Investments LLC.
“It’s typical for a new CEO to report a lot of big charges to lower the
bar for themselves. You have a small window to do this and not get
blamed for it.”

I remember the kitchen sink excuses that were made for Countrywide itself back in 2007. That’s a pretty big kitchen!

The bank said earlier this month it agreed to pay Fannie Mae
and Freddie Mac $2.8 billion to settle or preclude disputes over
mortgages, triggering a $3 billion fourth-quarter provision. The
provision was expanded to $4.1 billion, Bank of America said today,
citing outstanding and future mortgage buyback claims. The quarter also
included $1.5 billion in litigation expenses, the statement said.

… The mortgage unit posted a $4.97
billion quarterly loss, widening from a $994 million loss a year
earlier, on the provision and goodwill charge. The provision for loan
losses in that unit fell to $1.2 billion from $2.25 billion.

Fannie Mae and Freddie Mac,
two of the biggest purchasers of home mortgages, have demanded banks
buy back loans that were based on incorrect data about the home or
borrower. The two government-controlled companies made more than $20 billion
in buyback requests to Bank of America through year-end. The deals and
additions to loss provisions “largely addressed” liabilities from Fannie
and Freddie, Bank of America Chief Financial Officer Charles H. Noski
said on Jan. 3.

The settlement with Fannie and Freddie apparently amounted to a back
door bailout in and of itself, for it appears that BofA was able to
settle for pennies on the dollar. The real threat is the private label
stuff, though. Oh yeah, the US Central Bank has bought up much of that
as well. Anyone care to hazard a guess who will foot the bill for that
back door bailout?

Bank of America’s stock slid 11.4
percent in 2010, the second-worst performance in the 24-company KBW Bank
Index; only People’s United Financial Inc. declined more. The lender
had told investors to expect a $2 billion goodwill impairment on its
mortgage operations in the fourth quarter, saying the unit’s value had
declined because of litigation and foreclosure costs. Bank of America
acquired Calabasas, California-based Countrywide in a stock swap
originally valued at $4 billion.

Hmmm. A $2 billion goodwill charge following a $4 billion purchase from just two years back. Sounds like money well spent to me

The bank still faces suits from
insurers including including MBIA Inc. and Ambac Financial Group Inc.
alleging that Countrywide fraudulently induced the firms to guarantee
bonds composed of faulty mortgages. Bank of America said in a November
filing that it was “not possible at this time to reasonably estimate
future repurchase obligations” tied to litigation brought by the
insurers.

Moynihan also must fend off demands from Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York
for putbacks tied to about $47 billion of bonds, people familiar with
the matter have said. Bondholders agreed to delay legal action while
holding talks with Bank of America, the lender said last month.

I’ve been warning on this one since 2007 – What is the Fallout of the Ambac Bankruptcy on the Investment Banking Industry? Robo-signing Conspiracy Theory Grows Some Balls. It’s really just a big 3 card Monte game, really! See Banks,
Monolines, and Ratings Agencies As The Three Card Monte (Wall)Street
Hustlers! Its a Sucker’s Bet, Who’s Going to Fall for it in QE2? The truth that no seems to be admitting in the mainstream media is that the Shadow Inventory System in the US is Disguising the Equivalent of a Dozen Ambac Bankruptcies!

JPMorgan, the second-biggest U.S.
bank by assets, said last week that fourth-quarter profit surged 47
percent to $4.83 billion as $2 billion in reserves flowed back to
earnings on improving credit quality. Citigroup, the No. 3 bank,
reported a $1.31 billion profit, compared with a $7.58 billion loss a
year earlier. San Francisco-based Wells Fargo & Co., the fourth
biggest bank by assets, said Jan. 19 that profit rose 21 percent to
$3.41 billion.

Well, I have been suspect of these incongruencies from the beginning.
Both of these banks swallowed very sick banks that had horrid
underwriting procedures and tons of toxic assets. BofA comes clean, yet
JPM just wants to look clean, After
a Careful Review of JP Morgan’s Earnings Release, I Must Ask – “What
the Hell Are Those Boys Over at JP Morgan Thinking???? I will soon
illustrate for readers and subscribers how banks are booking “phantom
earnings” off of the back of shadow inventory that will go a long way in
explaining this “anomaly”.

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Fri, 01/21/2011 - 20:30 | 894894 Bob

What are the JP boys thinking? They're thinking they need to inflate profits in order to justify bonuses that are, in reality, an abuse of corporate finances for private gain--stripping company assets before TSHF.

Fri, 01/21/2011 - 14:56 | 894030 GottaBKiddn

Agenda 21 to the rescue.

All these real estate problems will be solved and the banks reduced to leasing agents, when the UN becomes the legal holder of title.

Fri, 01/21/2011 - 14:55 | 894028 KickIce

Simple answer, as long as they can print money without penalty.

Fri, 01/21/2011 - 14:41 | 893973 Pee Wee

Who is a believer in the fallacy of truth?

Truth simply doesn't exist when the rules are mallable and change to suit their corrupt authors for the good of their contributing hustlers..

Show me dead banks and the end of TBTF nonsense and this poster will start to believe in "truth."

The system needs to liquidate, not masturbate.

Fri, 01/21/2011 - 13:44 | 893750 Racer

How do you buy shares in a fund of mentals?

Is that a sort of precious metal fund or something?

Fri, 01/21/2011 - 13:32 | 893689 Eternal Student

Mr. Reggie: I was thinking that your commentary here was key and appropriate, until this little news article popped up this morning:

http://www.cnbc.com/id/41192262

"Banks Want Pieces of Fannie-Freddie Pie"

Dear sweet God. Having the Banks pass out loans guaranteed by the U.S. Taxpayer is the ultimate insanity. It will make the subprime mess look sane. And frankly, it strikes me as the only thing they can do to really expand credit to the levels that they need. It might even kick the can down the road for a few years.

I would be interested in knowing what your thoughts here are; especially as to how it pertains to your current article. And the financial state of affairs in general.

Thanks.

Fri, 01/21/2011 - 13:06 | 893557 sodbuster

As usual, Reggie, you hit the nail on the head- with a BIG hammer.

Fri, 01/21/2011 - 16:08 | 894303 Mark Medinnus

Can't touch that.

Fri, 01/21/2011 - 13:03 | 893545 stormsailor

dead bang on again reggie. your research and insight are on dead bang.

wonder when the fantasy reality will be over?

Fri, 01/21/2011 - 13:14 | 893594 JW n FL

When the FED runs out of paper... so never. BTFD's!

Fri, 01/21/2011 - 15:37 | 894191 Sudden Debt

PEAK PAPER IN 2012!!!

Fri, 01/21/2011 - 12:50 | 893509 jus_lite_reading