Bank of America said on Wednesday that its profit plunged 43 percent in the second quarter, dragged down by a large legal expense that overshadows some otherwise positive results.
The bank reported profit of $2.3 billion, or 19 cents a share, on revenue of $22 billion, failing to meet Wall Street analysts' profit expectations of 29 cents a share, but exceeding revenue estimates of about $21.6 billion.
Bank of America's chief executive, Brian Moynihan, struck an optimistic tone about consumer spending and the bank's ability to generate revenue from investment banking
'The economy continues to strengthen, and our customers and clients are doing more business with us,' Mr. Moynihan said in a statement. 'Among other positive indicators, consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity.'
Bank of America's $4 billion legal expense in the quarter wiped out a substantial amount of its profits.
The bank said it had reached a $650 million agreement with American International Group in the quarter over to settle mortgage securities litigation.
The next big legal hurdle for the bank is settling an investigation by the Justice Department into the bank's role in selling defective mortgage securities in the lead up to the financial crisis.
On Tuesday, the banks' lawyers met in Washington with the Justice Department, but the two sides remain far apart on reaching a settlement, people briefed on the matter said.
Bank of America's legal charge follows Citigroup 's record $7 billion settlement with the Justice Department on Monday.
Like Citigroup, Bank of America has been wrangling with federal prosecutors over the terms of its own settlement in an effort to avoid a costly lawsuit.
The bank has been squirreling away reserves over multiple quarters to pay for an assortment of litigation expenses. But the charge announced on Wednesday likely indicates that the potential price tag for settling Justice Department's lawsuit has grown substantially.
The Justice Department had been seeking as much as $17 billion, which would likely include a combination of a cash penalty and so-called soft dollar relief for consumers. Prosecutors have warned the bank that they will file a lawsuit if the bank does not substantially raise its offer, which at one point totaled $12 billion, though the vast majority was made up of 'soft dollar' measures.
It was the second consecutive quarter that Bank of American had reported a large legal expense. During the first quarter, the bank reported its first quarterly loss in three years as it reported legal costs of $6 billion, taking many analysts by surprise.
Setting aside the legal morass, Bank of America reported some positive results, particularly in its investment bank.
Another bright spot: Bank of America said its fixed-income trading revenue increased 5 percent from a year ago.
At rival JPMorgan, revenue from fixed-income trading dropped by 15 percent, driven lower by what the bank described as 'historically low levels of volatility and lower client activity across products.' Goldman reported declines in fixed income, currency and commodities trading of 10 percent in the second quarter.
Trading revenue on Wall Street has plummeted in recent quarter because of low interest rates and tighter regulations. But for most banks the decline in the second quarter has been less precipitous as many executives had warned.
As traditional profit centers like trading and mortgage originations shrink, Bank of America and other banks have aggressively moved to cut costs, shedding employees and closing branches.
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