Bank of America's $10 Billion In 2014 Legal Charges Mask Ugly Trends, Net Interest Margin Drops To Lowest On Record

Tyler Durden's picture


If last quarter Bank of America was forced to report a stunning loss, its first in years, as a result of a $6 billion "one-time, non-recurring" litigation charge which clearly was added back to non-GAAP earnings because it could not possibly become a part of ongoing earnings, in Q2 BofA just reported another whopper of a litigation charge, this time totaling $4 billion. And naturally, BofA was helpful in adding it back to the actual EPS print of $0.19, which was to be expected: the charge itself was $0.22 or more than the actual amount of money earned by the bank in the quarter, resulting in a pro-forma EPS of $0.41 beating Wall Street expectations of $0.29.

But are BofA's litigation charges truly "one-time"? Look at the chart below and decide for yourselves: in 2014 alone BofA has already charged and added back some $10 billion in litigation expenses. But sure, go ahead and "add them back."

Sadly, without this fluff addbacks which is now as much as part of
BofA's as any other item, the bank's earnings declined by 43% from $4.01
billion to $2.29 billion.

And then there were the reserve reduction addbacks of course: in Q2 they amounted to $662 million, well above the $379 in vapor "earnings" posted last quarter:

But what is worse is that Bank of America reported Net Interest Income of $10.23 billion, below the expected $10.33 billion, and an amount that had nothing to do with legal fees, "one-time" charges and reserve releases, continues to decline.

Why was this number so weak? Because not only does BofA's balance sheet continue to collapse, with its mortgage services portfolio continuing to collapse from $780 billion to just $760 billion, down from $986 billion a year ago but because BofA just reported the lowest NIM, or Net Interest Yield as it likes to call it, in history at 2.22%. So much for that NIM surge that everyone has been expecting for years.

And speaking of BofA's balance shee, aft erht Q1 surge in provision for credit losses, in Q2 things were a little bit better, but nor much: the total amount dropped from $1 billion to $411 million "driven by improved credit quality." It was unclear just how much of an improvement considering, this was the second highest amount since Q3.

Going down the balance sheet, no surprise that like all the other major banks, BofA too was skwered when it comes to mortgages.

And while management tried to spin the $1.9 billion drop in earnings Y/Y in real estate, here is the end result: "Total staffing declined 14% from 1Q14, due primarily to continued reductions in LAS, as well as actions taken in sales and fulfillment as refinance demand slowed."

Elsewhere, there was no joy in tradeville either, as like all the other banks, BofA also succumbed to the ongoing contraction in trading across the board:

BofA's commentary:

  • Excluding net DVA 3, 4, sales and trading revenue of $3.4B was relatively flat vs. 2Q13 and decreased $697MM, or 17%, vs. 1Q14
    • FICC revenue increased $117MM, or 5%, vs. 2Q13, driven by improved conditions in mortgages and munis, partially offset by a decline in FX and commodities
  • 2Q14 revenues decreased $576MM, or 20%, vs. 1Q14, following a seasonally stronger first quarter
    • Equities revenue decreased $162MM, or 14%, vs. 2Q13 and $121MM, or 11%, vs. 1Q14 as low volatility depressed secondary market volumes and client activity

End of the day, however BofA may try to spin the results, the trendline is clear, and it is best represented by the bank's headcount.

Full report:

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Wed, 07/16/2014 - 08:03 | 4962065 asking4it2k
asking4it2k's picture

Banks are still making a fortune on "interest rate derivatives".. look it up!

The scary thing is when the FED raises interest rates many of those derivative bets go bad. The big banks will then fail, and can now legally seize your deposits under Title II of the Dodd- Frank Act. FDIC wont have the means to cover tens of trillions in losses.

.. You heard it here first.

Wed, 07/16/2014 - 08:07 | 4962070 Bill of Rights
Bill of Rights's picture

When? its already happening many just don't know it yet




Wed, 07/16/2014 - 08:09 | 4962071 Winston Churchill
Winston Churchill's picture

Hardly first. Been on this board a lot.

This is the "don't shoot the nigga" defence ,from blazing saddles, writ large.

Wed, 07/16/2014 - 08:12 | 4962085 buzzsaw99
buzzsaw99's picture

Magic 8 Ball sez: zirp 4evah bitchez!

Wed, 07/16/2014 - 08:42 | 4962148 buzzsaw99
buzzsaw99's picture

i concede they might raise them if the taper doesn't stop the melt up. they are shooting for a goldilocks landing which imo will be impossible. wi tu hi

Wed, 07/16/2014 - 09:50 | 4962382 Darksky
Darksky's picture

Did u post this here or on yahoo first?

Wed, 07/16/2014 - 08:05 | 4962066 Bill of Rights
Bill of Rights's picture

Consumer Real Estate Services reported a net loss o f$2.8 billion for the second quarter of
2014, compared to a net loss of $930 million for the same period in 2013, driven largely by a
$3.6 billion increase in litigation expense. Revenue declined $725 million from the second
quarter of 2013 to $1.4 billion, driven primarily by lower core production revenue due to
fewer loan originations as well as lower servicing income, primarily due to a smaller
servicing portfolio.

CRES first-mortgage originations declined 59 percent in the second quarter of 2014
compared to the same period in 2013, reflecting a decline in overall market demand for
refinance mortgages. Core production revenue decreased $542 million from the year-ago
quarter to $318 million due primarily to lower volume and a reduction in revenues from sales
of loans that had returned to performing status.

Horrible for a Market that is supposedly in recovery...

Wed, 07/16/2014 - 08:06 | 4962067 Sudden Debt
Sudden Debt's picture

clearly because the economy is growning to fast... it's overheating and than you get red hot charges...

Wed, 07/16/2014 - 09:12 | 4962222 Oldwood
Oldwood's picture

its been "growning" too long already.

Wed, 07/16/2014 - 08:09 | 4962074 Cattender
Cattender's picture

i think BOA is a part of the Fedreal Reserve..

Wed, 07/16/2014 - 08:21 | 4962099 NoDebt
NoDebt's picture

Other way around, but yeah, basically.

Wed, 07/16/2014 - 08:10 | 4962081 overmedicatedun...
overmedicatedundersexed's picture

banks pay you zerp on savings and yet bank c cards interest rates are 9.9% to double digits, does the press ahem the 4th estate ever address this? does it even bother our esteemed elected? eyes wide shut.

Wed, 07/16/2014 - 08:16 | 4962092 buzzsaw99
buzzsaw99's picture

they pay zirp then put your deposits with the fed and earn a cool .25% (on your money) for doing nothing. on trillions.

Wed, 07/16/2014 - 08:14 | 4962088 Oldwood
Oldwood's picture

The best part is that it takes very few "bells and whistles" to delude the public.

"They can't handle the truth"

It seems incredible that we can see the data that exists in this market and still call it a market, much less and economy. But its all we got, so BTFD and let the good times roll. Traders are more concerned about looking foolish by going against the buying trend, then losing their clients money. After all, they are just muppets.

Tell us how we are losing our asses and yet it remains a positive. Upside potential?

Wed, 07/16/2014 - 08:19 | 4962097 WTFUD
WTFUD's picture

. . . everybody do the reach around.

Wed, 07/16/2014 - 08:21 | 4962098 Seasmoke
Seasmoke's picture

I guess stealing houses that you have no skin in the game with, doesn't pay out as good as it used to. 



Wed, 07/16/2014 - 08:29 | 4962122 Atomizer
Atomizer's picture

LOL. NAR to the rescue on seasonally adjusted home activities reporting. 

Wed, 07/16/2014 - 08:24 | 4962109 buzzsaw99
buzzsaw99's picture

somewhere angelo mozillo is laughing. it pays to have a senator or two in your pocket.

Wed, 07/16/2014 - 08:53 | 4962177 shovelhead
Wed, 07/16/2014 - 09:09 | 4962214 11b40
11b40's picture

So, why do you want to hijack this thread? Work for a bank, or for another web site?

Wed, 07/16/2014 - 09:19 | 4962244 creeko
creeko's picture

10 billion in 6 months.  That's a lot of money.  Oh wait.. that's taper chump change.

Wed, 07/16/2014 - 09:57 | 4962409 magnetosphere
magnetosphere's picture

did they really fine boa?  i thought it was a matter of principle not to fine any wall st banks.  or is this a fake "fine"?

Wed, 07/16/2014 - 10:01 | 4962426 Ban KKiller
Ban KKiller's picture

Continuing criminal enterprise...not a bank.

Love fighting them in court as their attorneys are dumb fucks. 

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