Bank of America Corp. Chief Executive Officer Brian T. Moynihan told shareholders today the nation’s housing market faces “enormous challenges” and that the lender is still struggling to contain bad mortgages.
The bank, the biggest in the U.S. by assets, is putting “legacy” loans behind it and must resolve issues that arose after the acquisition of Countrywide Financial Corp., said Moynihan, 51, at the company’s annual shareholders meeting in Charlotte, North Carolina, where the bank is based.
Refunds and legal settlements tied to defective home loans dragged down first-quarter profit 36 percent to $2.05 billion, and the mortgage unit “still struggles mightily,” Moynihan said. Bank of America is the biggest servicer of U.S. mortgages, and is among banks negotiating with state attorneys general on potential penalties for faulty foreclosures.
Fourteen of the largest servicers including Bank of America signed a consent decree in April with the Federal Reserve and Office of the Comptroller of the Currency that compels them to pay back homeowners for losses on foreclosures that were mishandled, and to overhaul procedures for seizing homes.
Earnings are suffering from excess risk taken on when the firm acquired Countrywide in 2008, Moynihan said. While regulators at the time welcomed the bank’s rescue of Countrywide — which had been the biggest U.S. home lender — “attitudes have changed,” he said.
The bank has worked over the last year to rebuild a “fortress balance sheet” and capital cushion “to make sure we can handle anything that comes our way,” Moynihan said. Capital ratios are the strongest in a decade and the core franchise is strong, he said.
Moynihan told attendees today that the company needs to resolve concern about bad mortgages and lower the perceived volatility of the firm in the eyes of regulators before trying again to win approval of its capital plan, which would allow the company to raise its dividend. The plan will be resubmitted when management is sure regulators will accept it, he said.
Bank of America was left behind as competitors including JPMorgan Chase & Co. and Wells Fargo & Co. passed a Federal Reserve review of their capital plans and then increased their payouts. Moynihan had told investors in January and March that he believed the firm could raise its dividend this year. Bank of America had a 64-cent quarterly payout until 2008; it’s now a penny a share.
Promising a dividend before knowing you could deliver it was a “rookie mistake,” said Tony Plath, a professor of finance at the University of North Carolina in Charlotte who follows Bank of America. Moynihan became CEO in January, 2010.
“You can’t be a rookie CEO when you’re running a $2 trillion company,” Plath said in an interview before today’s annual meeting.
Investor Judith Koenick, who said her income was slashed when the dividend was cut, said Moynihan and other executives should forgo bonuses until they fully restore the payout.
“I would like you to explain how you’re entitled to all this money when you’re still sticking it to shareholders,” said Koenick of Chevy Chase, Maryland. “You should not be taking more than a dollar until you get the stock back up to where it was before you and your predecessors screwed it up.”
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