Maybe now BofA boss Moynihan can open Moynihan era

June 29, 2011

By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Maybe Brian Moynihan can finally start Bank of America’s Moynihan era. The $21 billion of mortgage-related charges just unveiled by the beleaguered megabank’s chief executive doesn’t quite clear the decks. But it removes one of the biggest stains left by his predecessor Ken Lewis.

Lewis’s $4 billion offer for mortgage lender Countrywide looked like a good deal back in early 2008. At a third of book value, it appeared to build in a decent cushion against potential losses on assets held on the balance sheet while making BofA the leading provider of mortgage finance.

But that didn’t allow for a prolonged housing slump or the risk of having to compensate bondholders and others who were exposed to dodgy loans Countrywide had sold or repackaged into mortgage securities. All in, these accounted for about three-quarters of the almost $1 trillion of non-agency home loans BofA’s various units originated between 2004 and 2008.

The settlement on Wednesday deals with much of the fallout, including an $8.5 billion deal with 22 institutional investors, from BlackRock to the Federal Reserve. That means BofA has now shelled out or earmarked at least $30 billion to cover claims and related legal and goodwill writedown costs on non-agency mortgages, almost all related to Countrywide.

That’s more than seven times what Lewis paid for Countrywide. The financial and reputational hits from both that deal and his grab for Merrill Lynch ultimately cost him his job. Countrywide’s perma-tanned founder and boss Angelo Mozilo was fined $67.5 million by the Securities and Exchange Commission and banned from being a company officer or director for life.

Moynihan can now put most of that sorry history behind him. There are, however, still more legal tangles and other challenges. For example, the bank has revised downwards its estimated Tier 1 common equity ratio by 2013 for a second time, to just under the required 7 percent. But there’s time to fix that. Some 18 months into the job, Moynihan might — just might be able to start carving his own path.

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