Bank of America earnings disappoint

A pedestrian walks by a Bank of America branch office on January 21, 2011 in San Francisco, Calif.

STEVE CHIOTAKIS: Bank of America today posted a bigger than expected loss in its second quarter thanks to an expensive mortgage-backed security settlement and some bad loans. The biggest U.S. bank by assets said it lost about $9 billion in the quarter. Meanwhile, the nation's biggest investment bank -- Goldman Sachs -- reported a profit of more than $1 billion.

What do these numbers say about the state of American financial markets? Marketplace's John Dimsdale is with us live from Washington with the latest.

Good morning John.

JOHN DIMSDALE: Good morning Steve.

CHIOTAKIS: So what are these profit reports telling us?

DIMSDALE: That despite all the stimulus measures, all the cheap money that the Fed has been throwing at banks to loosen lending, the 4-year old sub-prime mortgage crisis is still weighing down the industry. It's the largest quarterly loss in Bank of America's history. Just a year ago it was posting a $3 billion profit. Most of the bank's red ink this time is due to an $8.5 billion settlement with investors who bought sour mortgage bonds from the bank.

CHIOTAKIS: And what about Goldman Sachs? The titan of investment banks.

DIMSDALE: So, better than Bank of America, but worse than many analysts expected. Goldman, too, is stuck with bad mortgages. The other drag on Goldman's bottom line comes from new regulations. Standard & Poor's banking analyst Christopher Maimone says banks are being asked to set aside more money to insure against future losses, but that comes at a cost.

CHRISTOPHER MAIMONE: The higher the minimum level of capital required for these banks, the less capital they have to invest. So that ultimately may prove to be a drag on the sustainability of Goldman's earnings.

DIMSDALE: Plus there's new evidence that banks are still mired in the mortgage mess. Local governments are reporting they're still seeing robo-signing of mortgage paperwork. Signatures that prove loans and foreclosure documents are being processed without any scrutiny by the banks. So these problems for banks are going to continue.

CHIOTAKIS: Marketplace's John Dimsdale, reporting from Washington. Thanks.

DIMSDALE: My pleasure

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