3 Critical Numbers From Bank of America's Earnings Release

Think you know what's going on at Bank of America? If so, then you might want to check out these three numbers.

Apr 17, 2014 at 7:11AM


There's no question that Bank of America (NYSE:BAC) has made considerable progress over the past few years at atoning for its role in the financial crisis. However, if there was any question about whether it's fully recovered, the bank's latest earnings release proves the answer is no.

Nothing demonstrates this more than the performance of Bank of America's legacy assets and servicing unit, or LAS, which administers its toxic and noncore assets dating back to the crisis. For the three months ended March 31, its parent division, consumer and business banking, lost a staggering $5 billion. As you can see in the following chart, this more than offset the combined earnings from the lender's four other operating divisions.


The source of LAS's problems is twofold. They derive in the first case from massive litigation expenses stemming from faulty mortgages sold by Bank of America and legacy companies like Countrywide Financial to institutional investors in the lead-up to the crisis. In the first quarter alone, the Charlotte, N.C.-based bank recorded $6 billion in litigation expenses -- click here for a comprehensive list of Bank of America's legal settlements since 2008.

Beyond this, Bank of America has found itself weighed down by one of the country's largest and worst performing portfolios of mortgage-servicing rights. For the record, these are intangible assets that stay with a bank after it's originated a mortgage, packaged the loan into a mortgage-backed security, and then sold the security to institutional investors like insurance companies, pension funds, and university endowments.

Although mortgage servicing rights have historically be lucrative assets for banks, the tides turned when default rates picked up and regulators imposed higher duties on the servicing process. This resulted in a dramatically higher headcount in Bank of America's LAS unit. And, suffice it to say, expenses in the unit responded in kind.

It's for this reason that the three most important metrics that investors in Bank of America should watch all have to do with this -- namely, (1) the noninterest expense associated with its LAS unit, (2) the number of LAS employees on staff, and (3) the quantity of third-party mortgages that LAS services.


The good news, as you can see in the preceding chart, is that Bank of America continues to whittle down all three of these figures. LAS's third-party mortgage-servicing portfolio dropped by 45% in the first quarter compared with the year-ago period; its employee count fell by a third; and its quarterly noninterest expense, something CFO Bruce Thompson pointed out in his prepared comments, was slashed by $1 billion.

These are impressive accomplishments no matter how you slice it. At the same time, there's a lot that needs to be done before all three are down to zero -- which, for the record, is the bank's objective. To tie everything together, in turn, if you're ever curious about whether Bank of America has recovered from the crisis, or about how much progress it still needs to make, then these are the three numbers that will provide the answer.

Big banking's little $20.8 trillion secret
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under Wall Street's radar. To learn about about this company, click here to access our new special free report.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers