NEW YORK, July 16 (UPI) -- Bank of America earnings dropped 43 percent for the second quarter as the bank had to pay a large legal settlement that overshadowed otherwise good results.
The bank reported Wednesday a profit of $2.3 billion, or 19 cents per share. Analysts had predicted a 29 cents per share profit but that estimate did not take into account the large legal settlement the bank paid to AIG. The bank reported revenues of $21.75 billion, down 4.3 percent but better than analysts estimate, $21.61 billion.
"The economy continues to strengthen, and our customers and clients are doing more business with us," Bank of America CEO Brian Moynihan said in a statement. "Among other positive indicators, consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity."
Bank of America settled with AIG for a lawsuit filed by the latter, for the sale mortgage securities during the financial crisis. The bank will pay AIG $650 million as part of settlement that includes Countrywide and Merrill Lynch, bought by Bank of America in 2008. The banks were accused of misleading AIG about the quality of mortgage securities they sold it.
This the second quarter in a row that the bank has reported a large legal cost in its earnings. The bank reported a $6 billion legal cost in the first quarter that caused the bank to have its first quarterly loss in three years, taking many Wall Street analysts by surprise.
AIG has also agreed to drop its objection to Bank of America's $8.5 billion settlement with a group of 22 mortgage investors, including AIG.
The next big challenge for the bank will be to negotiate a settlement with the Justice Department for its role in selling bad mortgages in the lead up to the financial crisis. People close to the matter said that the two sides met on Tuesday but are still far from reaching a settlement.
At one point federal prosecutors were asking for $17 billion in penalties and money that will be used to help consumers. But Bank of America continues to wrangle with the Justice Department to soften the blow of this inevitable penalty as much as possible.