Mortgage-Backed Securities Problems Continue to Haunt Bank of America


Bank of America plans to take another $13 billion in charges related to a pending settlement with private label mortgage-backed securities investors, including the Federal Reserve Bank of New York, Pimco Investment Management, and Blackrock Financial Management, according to a Reuters article entitled “BofA to take $13 billion more in charges: Bernstein.”

Sanford C. Bernstein expects Bank of America to report a loss of 67 cents a share in the second quarter, having earlier forecast a profit of 29 cents a share, according to the article.

Apparently, the additional charges are in response to a group of public pension funds and a group of bondholders that have challenged Bank of America Corp’s proposed $8.5 billion settlement, which the bank expects will result in $20 billion of charges and a second-quarter loss.

The bank was exposed to the liability of mortgage lender Countrywide Financial, which it acquired in 2008, just as the housing market bubble was bursting. The institutional investors have been pressing the bank for a year to honor its contractual obligation to buyback $47 billion in defaulted mortgages that the group purchased as mortgage-backed bonds from Countrywide.

Bernstein also cuts its earnings predictions on major U.S. investment banks Morgan Stanley and Goldman Sachs, citing the prolonged weakness in U.S. housing, negative impact of European debt and turmoil in the Asian markets, according to the article.