Actual finance blog

Things keep getting worse for Bank of America.

The nation’s largest bank reported a loss of $9.1billion during the second quarter, partly due to an $8.5 billion settlement with investors. That agreement, reached in June, settled claims that the bank had sold the investors poor-quality mortgage bonds.

The Charlotte, N.C. bank has been hamstrung by litigation and demands from investors who want Bank of America to buy back the bonds that it sold years ago. In the quarter, the bank set aside an additional $1.9 billion to fight litigation bringing the total mortgage-related charges in the second quarter to $20.7 billion. The bank does not disclose the total amount reserved for litigation costs.

The reported loss available to common shareholders was 90 cents per share, wider than the 85 cents a share loss expected by analysts surveyed by FactSet. Excluding charges related to investor settlements, Bank of America Corp. earned $3.7 billion, or 33 cents per share. That compares with net income of $3.1 billion, or 27 cents a share, in the same quarter last year. The bank’s revenue declined 54 percent to $13.2 billion from $29.1 billion in the same period last year.

While several of the bank’s businesses reported positive earnings, almost all of them saw declines in revenue. Loan losses in its consumer businesses dropped for the fifth consecutive quarter. More of the bank’s customers paid on time, which led to a 60 percent decline in the amount the bank puts aside for credit losses from last year.

Bank of America’s credit card division reported income of $2 billion, up $1.2 billion from the year-ago quarter, as customers paid on time. However, revenue declined by $1.4 billion.

Commercial banking was another bright spot, reporting net income of $1.4 billion, up $566 million from a year ago. But revenue in the division decreased $73 million from a year ago.

Its Merrill Lynch investment banking unit reported fees of $1.6 billion, a 28 percent increase from a year ago.

Bank of America shares were up less than 1 percent in pre-market trading to $9.77.

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FRANKFURT

OTTAWA

The traditional cottage country spring real estate market has been delayed by unseasonably cool weather, and the Victoria Day weekend looks to be a bit of a washout.

But realtors are hopeful that this year will be better than last as the economy shakes off the shackles of the recession and enters a recovery mode.

U.S. Treasury Secretary Timothy F. Geithner said budget deficits threaten to erode the nation’s economy and security and can’t be reduced with “magical thinking.”

“Neither Congress nor the administration should be able to use unrealistic assumptions about future economic growth or future political courage, or other forms of magical thinking, to minimize the magnitude of the reforms that will be necessary,” Geithner said today in a speech at the Harvard Club in New York.

Geithner said U.S. “fiscal problems are so pressing that they threaten to undermine the foundations of our future economic strength” and the country’s ability “to protect our national security interests.”

Lawmakers and the Obama administration are trying to reach a bipartisan accord on cutting long-term deficits as part of a plan to raise the legal limit on the national debt. Senate Republican leader Mitch McConnell of Kentucky said his party wants “significant” cuts in spending and no tax increases as a condition for lifting the limit.

In response to a question, Geithner said the U.S. benefits from global confidence in the dollar, especially during times of financial and economic stress when investors turn to the currency as a safe haven.

“That is an important thing we want to preserve and protect about the United States,” he said. He declined to comment on recent investment trends for the dollar and other currencies.

Debt Ceiling

On the debt ceiling, the U.S. was $25 million under the $14.294 trillion limit as of yesterday, according to Treasury data released today. Geithner said yesterday he had taken measures to stay below the limit until Aug. 2.

The ceiling “relates only to commitments we have made in the past,” Geithner said today. “Rather than debating whether we should pay our past bills and whether default would in fact be so bad; rather than designing schemes to allow us to continue to make interest payments by breaking our commitments to seniors and veterans, we should be working together to narrow our differences on how to solve the causes of future deficits.”

Geithner wrote lawmakers to say he had declared a “debt issuance suspension period,” which allows him to free up borrowing room from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund. The steps, widely expected as Republicans and Democrats argue over when and how to raise the debt cap, won’t affect retirees or government operations.

‘Not an Option’

Geithner reiterated today that “the debt limit must be increased. It is simply not an option for Congress to evade the basic responsibility to protect America’s creditworthiness.”

In his first public comments related to the arrest over the weekend of International Monetary Fund Managing Director Dominique Strauss-Kahn on sexual assault and attempted rape charges, Geithner said the IMF needs to get its leadership in place because its chief is “obviously not in a position” to run the lender. Geithner also said John Lipsky, the IMF’s acting managing director, is competent and capable.

On fiscal issues, Geithner said the administration’s effort to overhaul the corporate tax code to reduce deductions and loopholes likely won’t be completed in the next two months because it is trying to tackle broader budget issues.

“We’d like to take a run at doing this ahead of the election,” he said.

Geithner said the U.S. should get its deficit below 3 percent of gross domestic product, from 10.9 percent of GDP projected for the current fiscal year ending Sept. 30. The U.S. also needs a “debt cap so that politicians cannot choose to live with unsustainable deficits,” he said.

Speaking later on a panel after a screening of the HBO film “Too Big to Fail,” Geithner said Europe has the capability to handle the region’s debt crisis. “They just have to do it,” he said.

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Congratulations, graduates! As you pick up your sheepskin this spring, heed the sage advice of art professor Gary Bolding, delivered at a Florida commencement a dozen years back.

“Graduates, your families are probably very proud of you right now,” he said. “They weren’t altogether confident that you would ever make it through potty-training; so you can’t begin to imagine the enormity of their sense of relief today. Without question, today would be an extremely opportune time to ask for money.”

Yep, hit up Mom and Pop for that final allowance payment. Consider it reparations.

After all, we old boomers have left you in a fine pickle. We let the cost of college run so high that many of you are deep in hock on student loans. (Two-thirds of new college grads owe student debts averaging $24,000.) Then we let greed run wild in the banking system. As a result, you’re graduating into 9 percent unemployment.

As a guilty geezer, the least I should do is point out how to avoid living under a bridge. In brief:

Americans increased their spending in March as they paid more for gasoline and groceries, suggesting income gains may need to pick up to prevent a bigger squeeze on household finances.

Purchases rose 0.6 percent after a revised 0.9 percent gain the prior month that was higher than previously estimated, the Commerce Department said today in Washington. After adjusting for changes in prices, the spending that accounts for 70 percent of the economy rose 0.2 percent in March.

Workers are finding limited success asking for pay raises, a reason Federal Reserve policy makers will maintain record monetary stimulus after ending large-scale bond purchases in June. Another report showed business activity grew in April at a pace that’s consistent with steady expansion in manufacturing.

“A larger share of consumers’ money must be allocated toward gasoline and food,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “Manufacturing is continuing to expand and looks healthier than other parts of the economy.”

Stocks gained as results at Caterpillar Inc. (CAT) and Goodyear Tire & Rubber Co. beat estimates. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,363.61 at the 4 p.m. close in New York.

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Aerotropolis at a glance

The $480 million package of tax breaks for a St cashadvance. Louis cargo hub comes in several pieces. They are:

Investors drove up U.S. home sales last month, plunking down cash to grab cheap homes at risk of foreclosure. But first-time homebuyers, who are crucial to a housing recovery, stayed away.

Sales of previously occupied homes rose last month to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors said Wednesday. That’s up 3.7 percent from 4.92 million in February. The pace is far below the 6 million homes a year that economists say represents a healthy market.

Foreclosures or short sales, when the lender agrees to accept less than is owed on the mortgage, rose to 40 percent of all sales. Deals paid for entirely in cash accounted for 35 percent of all sales _ the highest level in nearly two years.

Many of those purchases are being made by investors, who are targeting cheap properties in areas hit hardest by foreclosures: Phoenix, Las Vegas and Tampa.

The evidence of their activity: sales of homes priced under $100,000 have risen 10 percent from a year ago. In that same period, sales of mid-priced homes, between $100,000 and $500,000, have fallen by more than 14 percent.

A big reason for that is fewer first-time homebuyers, the types of people who set down roots and raise families, are entering the market. Sales among that group fell to 33 percent in March. A more healthy percentage of first-time buyers is 40 percent, according to the trade group.

The median sales price rose in March to $159,600, but is still down 5.9 percent from a year ago.

Many would-be buyers are holding off, worried that home prices haven’t hit their bottom. Other potential buyers are having trouble getting mortgages because banks have tightened lending requirements.

One major obstacle to a housing recovery is the glut of unsold homes on the market. There were 3.55 million unsold homes in March. It would take 8.4 months to clear them off the market at today’s sales pace. Analysts say a six-month supply represents a healthy supply of homes.

Economists say the situation is much worse when the “shadow inventory” of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.

Foreclosures are playing a big role in weakening the housing industry. A record 1 million homes were lost to foreclosure last year and foreclosure tracker RealtyTrac Inc. said it expects 1.2 million more will be lost to foreclosures this year.

For March, sales rose 8.2 percent in the South, 3.9 percent in the Northeast and 1 percent in the Midwest. Sales fell 0.8 percent in the West.

Sales of single-family homes rose 4 percent to an annual rate of 4.45 million units. Sales of condominiums rose 1.6 percent to a rate of 650,000 units.

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While Japan undergoes the agony of a nuclear accident, the future of Canada