BofA CFO Thompson Doesn't Expand on Capital Miscalculation -- 2nd Update

By Dow Jones Business News, 
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By Christina Rexrode

Bank of America Corp. Chief Financial Officer Bruce Thompson provided few details Wednesday on the capital miscalculation that last month forced the bank to suspend its plans to raise its dividend.

Speaking at a Barclays conference in London, Mr. Thompson gave his expectations for trading revenue and its mortgage business, but didn't speak much about the topic on everyone's mind.

Asked by Barclays analyst Jason Goldberg how the error had happened, or how it might color the Federal Reserve's view of the bank, Mr. Thompson repeated points the bank has made for the past two and a half weeks: The error didn't affect earnings, was discovered internally, and was reported promptly to regulators.

The error resulted in the bank's capital ratios being lower than previously thought, though the ratios are still higher than regulatory standards. Mr. Thompson said Wednesday that "we need to get back on track with respect to the progress we've made" on the capital ratio. He said the bank would "get back to doing a great job" on the stress test process and share buybacks.

At the bank's annual shareholder meeting last week, Mr. Thompson said that the error was found within "several areas" of the units that report to him, though he didn't elaborate. Bank of America has until May 27 to turn in a revised capital plan to the Fed.

Mr. Thompson said Wednesday there would be "ebbs and flows" in trading revenue, with "reasonable" activity in credit sales and trading, municipal bonds and mortgages.

But for trading focused on interest rates and foreign-exchange, there hasn't been enough volatility for investors " to express a strong view," Mr. Thompson said.

Mr. Thompson's comments referred to the bank's FICC unit, which stands for fixed-income, currencies and commodities. The color he provided was hardly the same sort of clarity that J.P. Morgan Chase & Co. offered earlier this month, when it warned that it expects trading revenue to slump 20% in the second quarter, compared to a year ago.

FICC is an important revenue engine for the big U.S. banks, but it has slowed in recent quarters due to new regulations and wary investors.

Bank of America logged a 15% decline in its FICC business in the first quarter, after stripping out a large one- time number that weighed down the year-ago results.

Mr. Thompson also said the bank will stick to high-quality, low-risk borrowers when looking for new mortgage business. "We'll stick to our knitting," he said.

Call it the spirit of lessons learned. Bad mortgages that the bank made in the run-up to the financial crisis, as well as mortgages made by Countrywide Financial Corp., which it bought in 2008, have dogged Bank of America for years, and Mr. Thompson reminded his audience that servicing delinquent mortgages is unpleasantly expensive. "We've been there and experienced it before," he said. "It isn't something we're going to do it again."

But the mortgage business is hardly the boon that it used to be for big banks, and some rivals, anxious for revenue, have taken another tack. Wells Fargo & Co., for instance, recently lowered the minimum credit score that it is willing to accept for certain mortgage applications.

The bank funded $8.9 billion in mortgages in the first quarter, down 23% from the fourth quarter and in line with industry trends. But Mr. Thompson pointed out that the pipeline for new mortgage applications was up 23% in that same period.

"I don't think anyone's claiming that we're seeing robust loan growth across the industry," Mr. Thompson said. But, "we are seeing some decent loan growth going forward."

Write to Christina Rexrode at christina.rexrode@wsj.com

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