Why is Bank of America (NYSE:BAC)’s Quarterly Profit down?

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By Henry Owen on July 18, 2014 Consumer Staples

The second quarter’s profit figures of Bank of America (NYSE:BAC) fell down by 43 percent when the bank put $4 billion in the expense sheets. This $4 billion was for the litigation costs of the disputes related to the mortgages. The profits, after the deduction of $4 billion, fell down considerably and the figures are now below consensus.

Bank of America (NYSE:BAC) had to pay $650 million to American International Group for a settlement. Moreover, the bank reserved some money for the Department of Justice in lieu of the anticipated settlement. The Bank will pay around $50 billion for its settlement over disagreements that resulted in 2008, following the market crisis. After this decrease in the Bank of America’s profits, the shares fell down by 1.9 percent and reached the figures of $15.50.

The second quarter’s legal costs are way more than the costs that Bank had to pay in the second quarter a year back: the total legal expenses were recorded to be at $471 million for last year’s second quarter. However, the positive point is that these litigation costs for second quarter of 2014 are less than the first quarter’s legal expenses; for the first quarter of 2014, the Bank had to pay a total of $6 billion.

Bank of America (NYSE:BAC)’s retail banking earnings jumped up by 28.5 percent and reached the figures of $1.79 billion. Similarly, the investment and commercial profits increased by 4.3 percent and the figures were at $13.5 billion. Moreover, the Banks’ trading and Sales earnings rose by 14.44 percent and reached the figures of $1.1 billion. However, the legal costs that the Bank had to pay eclipsed the increased earnings and higher profits.

Bill Smead, CIO of Smead Capital Management, a firm that has 2.6 million Bank of America’s shares, said that the bank was facing consequences of what it did and what it had been doing for a period of seven years. However, Bill Smead was of the opinion that the future of Bank of America looked bright

Coming to the EPS of the Bank, common stock earnings fell down to 19 cents per share for the second quarter of the year 2014. The earnings were better last year: 32 cents per share. According to a report released by Thomson Reuters, the analyst firms were expecting an EPS of 29 cents for the most recent quarter.

The bank is currently negotiating with the Department of Justice over the investigations on Bank’s driven sales of mortgage bonds. Sources have it that the Department of Justice is asking for $17 billion in settlement, however, the bank is willing to pay a total of $12 billion.

Coming to the current stock situation of Bank of America (NYSE:BAC), the shares on the last trading day, July 16, started at a price of $15.66 and ended at a price of $15.51. Bank’s intraday range was recorded to be from $15.43 to $15.66. It has a market capitalization of $163.1 billion and a price earnings ratio of 20.59. As far as the 52 week high and low figures are concerned, the numbers are reported to be around $18.03 and $13.60 respectively.