Bank of America’s Countrywide hangover

Bob Moon Jan 21, 2011

Bank of America’s Countrywide hangover

Bob Moon Jan 21, 2011


Kai Ryssdal: A word as we get going on this Friday. That word is “putback.” The idea that this country’s biggest banks have not yet seen the end of their mortgage-backed security nightmares.

Bank of America reported this morning that it lost $2 billion in the past year. Most of that hit came in the final quarter of 2010, adjusting the books to account for the falling value of its Countrywide mortgage unit, the subprime lender it took over during the financial crisis. Bank of America also set aside more than $4 billion to buy back bad mortgages. The industry term is our word of the day: putback.

But even with all that, our senior business correspondent Bob Moon reports B of A’s mortgage hole could go deeper still.

Bob Moon: Groundhog Day came early for Bank of America — only the chill from lingering mortgage setbacks is certain to last a lot longer than just a few more weeks.

That didn’t stop CEO Brian Moynihan from characterizing the big losses in his first year at the helm as “progress.”

Brian Moynihan: We did lose $2 billion for the year 2010, but with the year came large ins-and-outs, and they’re all nearly driven by legacy issues which we continue to put behind us.

Mike Holland: I think that what they’re trying to do is front-load the torture.

New York-based fund manager Mike Holland says it makes sense for B o A to declare its deepest losses now; then, the only way for profits to go is up. Indeed, CEO Moynihan is stressing the bank’s so-called “legacy issues” won’t be recurring.

Holland: The “legacy” concept is a good one, in that he says that, you know, they’re not doing any more of that stuff. So, what’s on the books is about as much as the lawyers can come after, and that’s what they’re working on.

Going on that assumption, that there is a limit to the bank’s exposure, chief financial officer Charles Noski told analysts today losses could go as high as $7 to $10 billion in coming years.

Charles Noski: This is a possible range, not a probable range. It could be as low as zero, theoretically. You know, certainly we expect there will be additional provisions in future quarters — we don’t think they’re going to fall to zero.

In fact, all the big banks expect to be in the legal crosshairs for years to come. JPMorgan-Chase CEO Jamie Dimon cautioned analysts of that earlier this week.

Jamie Dimon: It’s going to be years before this plays out. There’s almost no other way to do it. You’ve got to do it loan by loan. It’s going to be a long, ugly mess.

One that he expects to drag out through at least 2013.

I’m Bob Moon for Marketplace.

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