2nd UPDATE: BofA Faces $20 Billion In 2Q Costs From Mortgage Woes

Bank of America Corp.'s (BAC) will take a massive blow of more than $20 billion in the second-quarter for various mortgage-related costs, including $14 billion the bank will put aside to repurchase soured mortgage loans from investors.

The costs show the continuing impact on the nation's biggest bank from the housing crisis and its purchase of home-lender Countrywide Financial.

The bank will pay $8.5 billion to settle claims brought by a group of high-profile investors, including BlackRock Inc. (BLK), MetLife Inc. (MET) and Pacific Investment Management Co., or Pimco, who purchased mortgage-backed securities that subsequently went sour. 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.

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 and roughly $4 billion that includes litigation costs and other writedowns related to servicing and foreclosure costs.

And despite the $14 billion the bank is setting aside for repurchase claims--bringing its total losses on mortgage putbacks to $22 billion since the start of 2010--it also said there remained a chance that losses from private investors could top its quarter-end accruals by another $5 billion.

The bank said it expects the mortgage-related costs to drag the company to a loss of $8.6 billion to $9.1 billion in the second quarter, or a loss of 88 cents to 93 cents per share.

Chief Executive Brian Moynihan said on a conference call Wednesday morning the $8.5 billion settlement means the bank has taken care of about half of all the original principal amount--nearly $1 trillion--the bank sold to private investors in mortgage-backed securities. The remaining potential $5 billion above accruals represents the bank's estimates on possible losses on that remaining amount of principal.

Despite the giant numbers, Bank of America shares rallied, as investors believed the charges resolved a major unknown 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 2.7% recently to $11.11. The stock is still down 17% this year.

Other bank shares also rose, with Citigroup Inc. (C) up 1.6% to $40.80, while J.P. Morgan Chase & Co. (JPM) was up 1.5% and Wells Fargo & Co. (WFC) was ahead 0.6%.

The settlement also drove prices in subprime mortgage bonds higher, with prices on most subprime mortgage bond indexes jumping by one to two points.

Nomura analyst Brian Foran said in a note the settlement implies the rest of the exposures are "very manageable" for banks, though it could also encourage other investors to look for similar payouts.

The demands by investors to repurchase mortgage bonds, which they alleged were poorly underwritten, have been a cloud hanging over Bank of America for months. It had earlier this year estimated private investor losses would be between $7 billion and $10 billion, with a chance to hit $14 billion.

Wednesday's $14 billion figure, and additional $5 billion in reserves, appears to put the total losses above even that worst-case scenario. But executives said some portion of the $5.5 billion accrual includes estimates for losses related to Fannie and Freddie, which weren't included in earlier estimates.

Moynihan at one point said the bank was in "hand-to-hand combat" to fight the claims. On Wednesday he argued the bank settled only with investors with legitimate claims.

"We did fight," Moynihan said "When you look at this overall it is a better decision for the company."

The head lawyer for the group of investors including BlackRock, Kathy Patrick of Gibbs & Bruns, said in a statement "This settlement is a significant achievement for investors in private-label mortgage-backed securities."

Moynihan also Wednesday was adamant the bank didn't need to raise capital as a result of the billions in losses, even as it faces new strict global capital requirements.

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 quarter will also include about $2.5 billion in gains related to the sale of various assets.

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

-Lauren Pollock and Al Yoon contributed to this report.

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