Anemic results underscore how little fun it is to run a big bank these days. The $276 million loss that Bank of America announced on Wednesday, however, at least provides some valuable perspective.
The bank, led by Brian Moynihan, was already expected to report a pretty low number because of its earlier flagged $3.6 billion mortgage settlement with Fannie Mae and Freddie Mac’s regulator. What surprised shareholders, though, was a $2.4 billion addition to reserves. Bank of America took the step after deciding that the amount it may have to pay out on lawsuits and other mortgage issues went up in the first three months of the year.
Penalty inflation has become a growing concern. Even so, much of the worst news at rival banks, not least JPMorgan Chase’s $13 billion settlement, came out before the end of 2013. That suggests that Bank of America has been tardy in re-evaluating its own exposures.
JPMorgan’s chief executive, Jamie Dimon, may take some comfort from the discouraging signs at his rival. He and his institution have been beaten up over the past two years on home loans and other mistakes. And yet it took a $9 billion hit, or 50 percent more than what Bank of America just paid, to cause a quarterly loss last year. That’s a stark reminder of JPMorgan’s comparative profitability despite its similarly sized balance sheet.
But Michael Corbat, the Citigroup boss, is probably scratching his head. Mr. Corbat has been coping with the embarrassment of the Federal Reserve rejecting his bank’s plan to return capital to shareholders, citing concerns over how the bank measures risk.
Judging by Wednesday’s showing, Bank of America’s issues sound similar. Citi’s results, while hardly awe-inspiring, nevertheless bested those of its Charlotte-based rival. Mr. Corbat’s bank eked out an anemic 7.8 percent annualized return on equity. After stripping out the litigation costs, Bank of America mustered just 6.8 percent. JPMorgan clocked in at a modest 10 percent. The context is instructive but hardly makes any of them inspiring.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
