BofA, Wells Fargo quarterly earnings in sharp contrast

Mortgage problems trigger a net loss of $8.8 billion for Bank of America in the second quarter. Wells Fargo, on the other hand, posts a record profit of $3.9 billion.Bank of America Corp. and Wells Fargo & Co., two of the nation's biggest home loan providers, reported vastly different second-quarter results as the banks continue to put the mortgage crisis behind them.

Earnings at BofA were sideswiped after the nation's largest bank booked an $8.5-billion charge to settle legal claims related to its troubled mortgage division. The nation's largest bank reported that mortgage problems triggered a net loss of $8.8 billion and pushed revenue down 55% from the same period a year earlier to $13.2 billion.

Wells Fargo, by contrast, turned in a record profit despite challenges in working through its portfolio of soured loans. The San Francisco-based bank, which is the nation's third largest, posted a profit of $3.9 billion that was up 29% from the year-earlier period.

Investors cheered Wells Fargo's earnings, sending shares up 5.7% to $28.41. Shares of Bank of America, which had announced earlier that it would take the charge to settle its mortgage woes, declined 1.5% to $9.57.

The results come as both Wells Fargo and Bank of America try to regain momentum lost when lending seized up during the financial crisis and crippled U.S. financial companies. Wells is currently the largest issuer of home loans in the country, while BofA — through its acquisition of Countrywide Financial Corp. — is the largest mortgage customer service provider.

They and three other major servicers accused of cutting corners on foreclosures at the expense of borrowers are negotiating a settlement with a coalition of federal and state officials that would include billions of dollars in financial penalties as well as overhauled procedures for handling customers in distress.

Wells and BofA also continue to face huge demands from Fannie Mae and Freddie Mac that they buy back mortgages that failed to conform to the standards of the government-controlled loan buyers and mortgage-bond issuers.

They recently agreed to settle lawsuits by investors who bought so-called private-label mortgage securities — bonds backed by subprime and other risky loans that did not qualify to be purchased or guaranteed by Fannie, Freddie and other government-sponsored agencies. The settlements must be approved by courts and withstand challenges from disgruntled investors.

The magnitude of the settlements illustrates the contrast between the two banks: Bank of America's tentative deal, announced June 29, includes $8.5 billion in proposed payouts to 22 institutional investors to settle demands that the bank repurchase bonds backed by Countrywide mortgages. An additional $5.5 billion is to beef up reserves for similar demands by other investors.

Wells, on the other hand, was never a huge issuer of private-label mortgage securities even though it until recently had a separate subprime lending unit. It acquired the portfolio of World Savings pay-option mortgages in its late-2008 acquisition of Wachovia Corp., which previously had acquired World Savings' parent company, Golden West Financial Corp. of Oakland.

Wells agreed last week to a payout of just $125 million to settle private mortgage securities litigation, although certain claims filed by Charles Schwab Corp. and the Federal Home Loan Banks of Chicago and Indianapolis were excluded. It said Tuesday that it had set aside $242 million during the second quarter for mortgage loan repurchase losses.