Bank of America has been plagued by claims tied to faulty mortgages and foreclosures, which have cost about $40 billion since the start of 2007. While the bank has been negotiating with investors and U.S.-backed mortgage finance companies to contain the expense, repurchase requests from Fannie Mae and Freddie Mac have "become increasingly inconsistent with our interpretation of our contractual obligations," the company said today in a slide presentation.
One of Moynihan's first public actions related to his cost- cutting initiative, called Project New BAC, was a management shakeup last month that elevated Thomas K. Montag and David Darnell to co-chief operating officers while leaving Sallie Krawcheck and Joe Price without jobs.
Merrill Derivatives
Montag runs businesses that deal with corporate or institutional clients, including investment banking and trading, and Darnell manages the consumer operations, encompassing the retail bank and wealth management.
"The diversity and depth in our customer and client offerings provided some resiliency in a very challenging environment," Moynihan said in today's statement.
Bank of America, hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.
The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren't authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn't believe regulatory approval is needed, said people with knowledge of its position.
Accommodating Customers
Jerry Dubrowski, a spokesman for Bank of America, declined to comment on the transfers or the firm's discussions with regulators. The company "continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA," he said in an e-mailed statement, referring to the company's deposit-taking unit.
Concerns over the European debt crisis and the possibility the U.S. economy may relapse into recession have weighed on the bank's shares. The KBW Bank Index has slumped 30 percent this year through yesterday, and Bank of America is the worst performer among the 24 companies listed.
Bank of America may perform poorly compared with peers in another U.S. recession, while New York-based JPMorgan Chase & Co. may be best positioned, John E. McDonald, a Sanford C. Bernstein & Co. analyst, said in an Oct. 6 research note. Higher unemployment would cause more foreclosure and mortgage-related costs, he wrote.