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Tuesday, May 8, 2012

Bank of America braces for protesters onslaught

CHARLOTTE, N.C. – Shareholders making their way to Bank of America Corp.’s annual meeting Wednesday in uptown Charlotte may find themselves weaving through scores of protesters angry over everything from coal-project financing to executive pay.

The shareholders have concerns of their own: Bank of America’s stock price has fallen nearly 40 percent since last year’s annual meeting in Charlotte. And despite a modest rebound so far in 2012, the lender’s performance still lags its big-bank peers.

While protesters and shareholders have vastly different concerns, they do have one major issue in common: the bad mortgages that continue to weigh down the bank.

Subprime mortgages contributed to hundreds of thousands of people losing their homes. They also have cost the bank billions in legal settlements and loan losses.

Protesters want to see a halt to foreclosures. Shareholders, weary of write-downs and legal costs, are eager for the bank to put the mortgage issues behind it and focus on growth.

“This year there is a very clear overlap between the two groups, though they may not see eye to eye,” said Jessica Clarke of Moxy Vote, an organization that helps individual investors and customers get involved in shareholder voting. “They’re coming from different angles, but it’s the same target.”

Bank of America improved over the year in terms of shrinking its balance sheet, increasing capital levels and reducing its risk. But it still earned just 1 cent per share for its investors, and its stock was the worst performer in the Dow Jones industrial average, losing 58 percent. Its stock has rebounded some in 2012, but it’s still around $8 per share.

The prime reason for the decline? The continuing fallout from the foreclosure crisis.

A Bank of America spokesman declined to comment, instead pointing to what the bank has said in the past. CEO Brian Moynihan has said that the $25 billion settlement reached this year among states, the federal government and the five largest mortgage servicers over servicing abuses will help heal the mortgage market.

Moynihan also has said the bank is making progress working through its troubled mortgage portfolio, and pledged that expenses would begin coming down by the end of the year.

Though the mortgage bubble was no single bank’s fault, protest groups target Bank of America, which acquired dominant subprime lender Countrywide Financial Corp. in 2008, for the toll foreclosures have taken on communities around the country. They were outraged by the reports that Bank of America and other mortgage servicers engaged in practices like “robo-signing,” or signing batches of documents without reading them – claims that led to numerous investigations.

The effects have spilled into the broader economy, sparking thousands of job losses and a continuing decline in home prices.

Nobody who has lost a home to foreclosure has been able to forget the crisis, no matter their lender. But Bank of America’s shareholders haven’t been able to put it in the past, either.

The bank’s division for dealing with troubled mortgages lost nearly $18 billion in 2011, according to its annual report. Bank of America also faces billions in liability for mortgages sold to entities like Fannie Mae and Freddie Mac, a number that is still increasing.

“For Bank of America, it’s still 2009,” said analyst Dick Bove of Rochdale Securities. “The other banks have gotten out of that because they don’t have the same degree of litigation. They don’t have the same degree of problems on their balance sheets and they are earning a lot of money.”

The biggest issue for investors at this point is how much money Bank of America will be able to earn going forward, said analyst Chris Mutascio of Stifel Nicolaus.

Of course, a number of other factors also are holding down earnings growth. The bank continues to shed non-core businesses as it streamlines. Overall loan demand remains tepid as the economy improves, and low interest rates make rapid growth difficult.

But mortgage-related issues continue to weigh on that picture. Foreclosure-related expense has held back the effects of the bank’s cost-cutting initiative, and many investors question whether the bank has written off enough on the value of its assets.

Moynihan points out that the bank has modified more than 1 million mortgages since the beginning of 2008.

Chief Financial Officer Bruce Thompson assured investors after the bank’s first quarter earnings release that the bank was prepared for legal claims from Fannie and Freddie as well.

The protest groups, though, don’t care about the bank’s earnings projections and largely reject the notion that they could be on the same page with shareholders.

At Wells Fargo & Co.’s annual meeting last month, several hundred protesters demonstrated on the streets of San Francisco and interrupted the meeting several times.

In Charlotte, protesters are expected to demand a complete halt to foreclosures, forgiveness of student loan debt, a stop to financing coal projects, an end to political spending and an end to seven-figure compensation packages.

Though Citigroup Inc. shareholders mirrored Occupy Wall Street sentiment by voting a thumbs-down to executive pay, a similar result is unlikely at Bank of America, analysts believe. Moynihan was paid about $7 million for his work last year, less than half the $15 million his counterpart at Citigroup received. Two major shareholder advisory firms have voiced their support for the pay packages at Bank of America.

“The fact that this is still considered acceptable puts a question in my mind on what side the shareholders are on,” said Brigid Flaherty, executive director of the Pushback Network, which will be protesting the meeting.

Even with common ground this year, the gap between activists and shareholders is not likely to be reconciled.

“There’s a real difference in values,” Flaherty said. “The bottom line of shareholders should really be the general well-being for homeowners. ... The bottom line should not be in the profit of Bank of America.”