BofA Reports $2.5 BN Net Income On $1.9 BN Reserve Release, Reps And Warranties Claims Soar

Tyler Durden's picture


There were several numbers one should focus on today's Bank of America earnings release. They were not the Net Income EPS ($0.19 which beat estimates of $0.15), the Income before income taxes of $3.4 billion, nor Revenue net of interest expense ($21.968 which missed expectations of $22.71 billion). Here are the numbers that did matter: Loan Loss Reserve Release $1.9b billion, or 56% of pretax net income, Sales And Trading Revenue exluding DVA plunged by $1.9 billion from Q1 to $3.3 billion (and by $263 million from a year ago), and most importantly, counterparty claims by coutnerparties for Reps and Warranties purposes (remember those? the realization of their size caused the stock to plummet last August) soared from $16.1 billion to $22.7 billion sequentially: the highest it has ever been, even as the company only took a $395 million provision against losses, and the ending Rep and Warranties balance was $16 billion (driven by nearly a doubling in Private repurchase request claims from $4.9 billion to $8.6 billion!), or well below the potential outstanding claims. BAC is now reserve deficient by about $6.7 billion! Considering the company's settlement with Syncora yesterday, and imminent settlement with MBIA this may be a tiny problem.

BofA Sales and Trading revenues implode as equity trading dries out, but a big collapse sequentially in the far more profitable Fixed Income.


Reserve release, at 56% of pretax Net Income, says why Net Income is completely meaningless.



And how BofA is once again very much underreserved: Why did private claims surge? "Increases in private-label new claims are primarily related to repurchase requests received from trustees on private-label securitization transactions not included in the BNY Mellon settlement, including claims related to third-party sponsored securitizations that include monoline insurance." The bank is once again largely underreserved.


Full Q2 earnings presentation:


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Wed, 07/18/2012 - 07:36 | 2627437 Boilermaker
Boilermaker's picture

BAC beat estimates!!  BAC beat estimates!!  BAC beat estimates!!

Wed, 07/18/2012 - 08:36 | 2627511 Thomas
Thomas's picture

The cooking continues. I asked a few over at Twitter how, in general, companies expense stock buybacks. In a nutshell, do they subtract from the reported earnings number or not? Does anybody know? I wouldn't be surprised if companies were using reported earnings to buy stocks, causing double counting.

And by the way, why the hell can't CNBC start asking CEOs who "ex-items" their ernings to explain what the "items" were and how much? You CNBC folks--I know you read Zero Hedge because you have no better sources--should stop enabling these guys. Ask the right questions or become irrelevant. You make the call.

Wed, 07/18/2012 - 09:04 | 2627604 adr
adr's picture

It is the exact same play as every quarter for the past three years. Lower expectations by 50% or more leading up to earnings. Cook the books to beat, algos see earnings beat, ad the market rallies on the BS.

Health of the real economy be damned. The stock market rising is all that matters.

I wonder if there were people like RoboTrader in the depression? Telling people in bread lines how good Duesenberg stock was doing.

Wed, 07/18/2012 - 09:20 | 2627662 LawsofPhysics
LawsofPhysics's picture

Having 56% of your pre-tax income be a loss is now considered "winning"?  Fuck me.

Wed, 07/18/2012 - 07:39 | 2627441 yourfather
yourfather's picture

good luck understanding that clusterfuck.

why are they putting 5% of earnings aside for bad debts anyway?

Wed, 07/18/2012 - 07:46 | 2627456 HelluvaEngineer
HelluvaEngineer's picture

With the VIX headed to 0, I don't know why you would need reserves for anything.  Everyone is doing just great on their stawks and will surely pay all their bills on time!

Wed, 07/18/2012 - 07:47 | 2627458 yourfather
yourfather's picture

my point exactly, 5% must mean they are very pessimistic.

Wed, 07/18/2012 - 07:54 | 2627467 boogerbently
boogerbently's picture

In my TDAmeritrade acct, any query into most banks "financial strength" comes back.....

"data not available to complete this analysis."

We only know what they tell us, and we know they are liars.

Wed, 07/18/2012 - 08:37 | 2627514 Stock Tips Inve...
Stock Tips Investment's picture

Understanding financial statements of banks is not necessarily an easy task. However, there are certain accounts that are fundamental. In difficult economic circumstances, it is very important that the financial statements are very solid.

Wed, 07/18/2012 - 08:48 | 2627537 battle axe
battle axe's picture

Well, I am sure that BAC has no exposure to Europe and there problems also...BWAHAAAA HAAA HAAAA. B of A, Translation: Bank of ASSESS. 

Wed, 07/18/2012 - 07:40 | 2627442 buzzsaw99
buzzsaw99's picture

monkey see monkey do in the banking world.

Wed, 07/18/2012 - 07:40 | 2627443 Doubleguns
Doubleguns's picture

No manipulation here, move along suckers...errr, folks, move along.

Wed, 07/18/2012 - 07:41 | 2627446 Snakeeyes
Snakeeyes's picture

Massive mortgage refinancing is helping Bank of America and other banks. The gift from Obama!!!!!!!!!!!11

Wed, 07/18/2012 - 07:41 | 2627448 Northeaster
Northeaster's picture

The reason The TBTF Banking Cartels are still in business:

Yet American can barely get 50% of registered voters to get off their couch and eject the real criminals that enable the greatest financial fraud in history.

Wed, 07/18/2012 - 08:09 | 2627475 overmedicatedun...
overmedicatedundersexed's picture

Nrotheaster"Yet American can barely get 50% of registered voters to get off their couch and eject the real criminals that enable the greatest financial fraud in history."

LOL, remember it's not who votes it's who counts the votes..true then very true now. I doubt the totals the results and those allowed to run: hint Mccain and mitty, both hated by the base GOP, but put in anyway.

on BOA - lies and more lies, falling earnings everywhere and yet it's rebound time again. big banks are BK. but then thats the definition of ZOMBIE banks.

Wed, 07/18/2012 - 08:56 | 2627569 WillyGroper
WillyGroper's picture

Perhaps 50% know there is not any choice to be had. The majority of them ARE criminals. Incumbent or not.






Wed, 07/18/2012 - 07:44 | 2627452 ThunderingTurd
ThunderingTurd's picture

Glad to see my options granted in '07 at $73/share are up 2% today to a stunning $8.  Just a little more to go until I am even money. (/sarc)

Wed, 07/18/2012 - 07:53 | 2627454 Dr. Engali
Dr. Engali's picture

I'm sure Dick Bove will be trotted out to talk about the great earnings.Such a trustworthy grandfatherly sage.

Wed, 07/18/2012 - 07:59 | 2627465 Yellowhoard
Wed, 07/18/2012 - 07:58 | 2627470 orangegeek
orangegeek's picture

One more leg up on the SP500 hourly should complete wave 2.


Wave 3 down to follow.

Wed, 07/18/2012 - 08:07 | 2627479 StockHut
StockHut's picture

Am I reading your sales/trading revenue chart wrong?  Based on that chart it looks like sales/trading revenue skyrocketed in Q2

Wed, 07/18/2012 - 08:47 | 2627533 sdmjake
sdmjake's picture

Think you are looking at total as opposed to the Increase/Decrease qtr over qtr. It plummeted...

Wed, 07/18/2012 - 08:12 | 2627485 Bugsquasher
Bugsquasher's picture

One of the best stories I've heard about BofA came from a friend of mine who lives in Charlotte.  They were working for the then First Union Bank.  He was offered a very lucrative position at BofA in their Risk Assessment division so he spoke with other friends who also worked at BofA.  They told him straight up; "You don't want to go there because 'they eat their own' and the turn over rate is huge.

Wed, 07/18/2012 - 08:46 | 2627529 Debtless
Debtless's picture

Unfortunately, only now during this entire crisis - do I personally know of people who are walking away from their homes via default or bankruptcy. And others whom are considering it deeply, some folks I would have never thought might be otherwise. This chapter is far from over.

Wed, 07/18/2012 - 08:58 | 2627578 WillyGroper
WillyGroper's picture

Oh no. Haven't you heard? Real estate has bottomed.

Wed, 07/18/2012 - 11:23 | 2628211 Debtless
Debtless's picture

I've heard that for the past 3 years. Lulz

Wed, 07/18/2012 - 13:58 | 2629117 rockraider3
rockraider3's picture

Syncora, I love you man!  Except the market doesn't. 

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