Brian Moynihan’s Bank of America is mounting a staggering retreat from its once steady business of underwriting home loans.
The Charlotte, N.C., bank suffered a whopping 80 percent drop in mortgage loans underwritten in the first three months of 2012, seeing the business fall to $16 billion from about $56 billion a year ago.
The retreat marks an about-face by the bank, which under former CEO Ken Lewis embarked upon a ambitious plan to corner the mortgage business by gobbling up stumbling Countrywide Financial during the height of the financial crisis.
Bank of America CEO Brian Moynihan appears to be presiding over game-changing shrinkage in the firm’s mortgage business.
Now the bank is happy to be an also-ran in a home-loan market being dominated by rivals Wells Fargo, JPMorgan Chase and Citigroup.
“They’re quickly becoming a bit player in mortgages,” said Paul Miller bank analyst at FBR Capital Markets.
According to Miller, BofA’s mortgage origination slice was 10 percent last year and nearly 25 percent in 2007.
Indeed, BofA ranks 10th in mortgage origination, according to trade publication Inside Mortgage Finance with a market share in the ballpark of 2 percent.
The mortgage ranks are being dominated now by Wells Fargo, which reported last week it had underwritten some $129 billion of new mortgages in the first quarter.
JPMorgan is a distant second to Wells with $38.4 billion home loans in the quarter.
“At this point, one out of every three home mortgages is being underwritten by Wells [Fargo],” said Guy Cecala, publisher at IMF.
BofA’s striking mortgage retrenchment comes after the lumbering financial giant has struggled to right its ship after the Countrywide purchase resulted in more than $40 billion in litigation costs and penalties.
Yesterday, BofA, under Moynihan’s stewardship, said it has made significant headway in addressing its legacy issues. It has moved to jettison its so-called third-party corresponding lending business, and dialing back costs at the nation’s No. 2 overall lender.
BofA argues that its plan should allow it to make more money on fewer loans because those loans will be originated directly via its banking relationships.
But that comes as the banking franchise concedes significant ground to its peers in mortgages.
“Our strategy is paying off,” Brian Moynihan said yesterday during a call to discuss earnings with analysts.
The moves led BofA to record a profit of $3.7 billion or 31 cents, compared to a forecast of 12 cents. The profit parade was led by healthier trading in its Merrill Lynch arm led by Tom Montag.
However, overall revenues at $22.5 billion were lower than Wall Street estimates of $22. 8 billion.
BofA shares closed down 1.7 percent to $8.77.
Meanwhile, Morgan Stanley delivered better-than-expected results under CEO James Gorman, who employed a full court press to deliver to the markets and rating agencies that the investment bank was in a good place.
“This quarter is further evidence that Morgan Stanley has rebounded from the financial crisis of 2008,” Gorman, 53, said in a statement.
Morgan Stanley rang up first quarter profits of 71 cents, far outpacing the 44 cents Wall Street expected.
The increase was credited in large part to the Gorman’s plan to stabilize the bank’s flaky trading arm and focus more on so-called flow business driven by client activity.
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