UPDATE: BofA To Book $14 Billion In 2Q Provisions Tied To Mortgage Woes

Bank of America Corp. (BAC) Wednesday unveiled $14 billion in charges related to mortgage-backed securities, another massive blow as the bank attempts to pay for the pile of souring mortgages it created and bought during the housing boom.

The bank will pay $8.5 billion to settle claims by a group of high-profile investors, including BlackRock Inc. (BLK), MetLife Inc. (MET) and Pacific Investment Management Co., or Pimco. Separately, the bank said it was taking a further $5.5 billion second-quarter provision tied to its exposure to government-run mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) as well as other private investors.

It also said there remained a chance that losses from private investors could top its quarter-end accruals by another $5 billion.

Even further, the bank also expects to record $6.4 billion in other mortgage-related charges in the period, including $2.6 billion to write off the balance of goodwill in the consumer real-estate services business.

But despite the giant numbers, Bank of America shares rallied as investors believed the charges put behind a major cloud hanging over the shares. Indeed, for the $8.5 billion settlement to big name investors, the bank is paying just 2 cents on the dollar of the original principal, and just under 4 cents on the dollar for the remaining unpaid balance. Estimates from analysts on the problem had at points suggested the bank may need to pay more than $50 billion ultimately.

Shares climbed 4.8% to $11.33 premarket.

The investor settlement ends a nine-month fight with a group of 22 investors who hold more than $56 billion in mortgage-backed securities. That payment marks the largest such settlement by a financial-services firm to date, exceeding the total profits of the Charlotte, N.C., bank since the onset of the financial crisis in 2008, The Wall Street Journal reported Tuesday.

"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," Chief Executive Brian Moynihan said. "We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."

Excluding mortgage and other items, Bank of America expects earnings of 28 cents to 33 cents a share for the second quarter. Analysts polled by Thomson Reuters projected 28 cents a share.

The dispute between Bank of America and the mortgage investors began last fall when they alleged in a letter to the bank that securities they scooped up before the financial crisis from Countrywide, acquired in 2008, were full of loans that didn't meet sellers' promises about the quality of the borrowers or the collateral.

Earlier this year, the bank reached settlements with Fannie Mae and Freddie Mac and bond insurer Assured Guaranty Ltd. (AGO). Fannie Mae and Freddie Mac agreed to a $3 billion settlement in January, and investors continued to pepper the bank with questions about its future exposure to repurchase liabilities.

-By David Benoit and Lauren Pollock, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com

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