by Evette Dionne
Another financial institution bites the dust. After losing $8.83 billion or 90 cents a share in the second-quarter, Bank of America is on the verge of financial disaster. To date, this second-quarter is the biggest quarterly loss in the history of the corporation. Chief Executive Officer Brian T. Moynihan is crediting this massive setback to “defective mortgages” and the sliding of revenue, but his attitude is not that of a CEO who is defeated.
According to a report from Bloomberg, Bank of America’s revenue plummeted dramatically to $13.5 billion, half of what it gained previously, because of newly disclosed mortgage costs. In addition to this, the mortgage unit component lost $14.5 billion compared to $1.5 billion because of settlement costs and additions to provisions. Though on the surface, the situation seems dire, Moynihan has no intentions of raising capital. He recently told analysts that he “didn’t see the need for raising capital and the bank continued to strengthen what it called a “fortress balance sheet,” with a Tier 1 common equity ratio of 8.23 percent and tangible common equity at 5.87 percent.”
Based on assets, Bank of America Based is the largest lender in the United States, but after dropping 28 percent in shares in 2011, it is now considered to have the worst showing in the 24-company KBW Bank Index. Don’t count Bank of America out of the financing equation though. Outside of their mortgage unit, the corporation is performing phenomenally well. The global banking and markets; sales and trading revenue; investment banking fees; fixed-income, currency, and commodities revenue, and wealth and investment management business all saw large increases in profit in the second quarter giving the financial powerhouse the boost it needs to continue to dominate the lending market.
Now, Moynihan seeks to turn over a new dollar and capitalize on this loss. Investors were informed on June 29th that Bank of America would “book more than $20 billion in second-quarter charges from faulty mortgages.” The corporation is also considering selling part of its $21 billion stake in China Construction Bank to assist it in raising $50 billion to conform to governmental regulations.
Bank of America might have fallen in their mortgage unit, but their overall foundation is still solid.