Bank of America earnings disappoint

Marketplace Staff Jul 19, 2011
HTML EMBED:
COPY

Bank of America earnings disappoint

Marketplace Staff Jul 19, 2011
HTML EMBED:
COPY

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

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.