Bank of America Is Halfway Home
NEW YORK (TheStreet) -- The long, rough ride for CEO Brian Moynihan isn't over, but all decks should clear for Bank of America
Investors are pleased with Moynihan, sending Bank of America's shares up 24% this year through Wednesday's close at $14.32, after the shares more than doubled during 2011.
As we approach the five-year anniversary of Lehman Brothers' bankruptcy filing at the height of the credit crisis in 2008, it's fascinating to consider the radical transformation of Bank of America and the promise of future glory, as the company expects its earnings to "normalize" during 2015.
It has been a very rough ride for the bank, ever since former CEO Ken Lewis decided in January 2008 it would be a great idea to purchase Countrywide Financial, just as the U.S. residential real estate market was showing signs of a coming collapse. At that time, Bank of America touted Countrywide's "broader mortgage capabilities, including its extensive retail, wholesale and correspondent distribution networks." To Lewis, Countrywide represented "a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers."
Since then, Bank of America ceded its position of top U.S. mortgage originator to Wells Fargo
The Countrywide acquisition eventually led to a very large increase in expenses for Bank of America as it built up a huge Legacy Asset Servicing staff to work through problem loans. The company also struggled to deal with mounting mortgage repurchase demands from investors, which peaked at $28.278 billion at the end of 2012.
Major mortgage settlements included a $2.8 billion settlement with Fannie Mae
The company's most recent major mortgage settlement was with MBIA
As part of the innovative deal, Bank of America provided MBIA with a $500 million secured credit line. In return, MBIA agreed to issue warrants allowing Bank of America to purchase 9.94 million MBIA shares for $9.59 a share, which can be exercised at any time through May 2018. The warrants enable Bank of America to acquire up to 4.9% of MBIA's common shares.
In addition to all of the mortgage putback settlements, Bank of America, as the largest loan originator (including Countrywide) through the real estate bubble, agreed in March 2012 to contribute roughly $8.6 billion as part of the industry's $25 billion mortgage foreclosure settlement with state and federal regulators.