Bank of America Corp. expects to take a provision of about $3 billion in the fourth quarter to buy back bad loans from Freddie Mac and Fannie Mae that were issued by its troubled Countrywide Financial unit.
The move represents the latest effort by the Charlotte-based banking giant, which acquired mortgage-originator Countrywide in 2008, to respond to the housing crisis. Countrywide’s mortgages turned into some of the worst mortgages issued during the crisis and, ever since Bank of America bought the lender, the bank has had to handle growing loan losses.
The lender also said it has received confirmation from the Federal Reserve that the company fulfilled its commitment to boost its equity by $3 billion, a condition of its repurchase $45 billion in preferred stock in December 2009 acquired as part of the Troubled Asset Relief Program. It faced a year-end deadline to raise the equity and sought to raise the capital by selling assets.
If it hadn’t done so, it might have had to pay some employees’ bonuses in stock instead of cash. The bank also had warned investors it might need to make a dilutive share offering to raise the capital. Instead, it sold such assets as 51.2 million shares in BlackRock Inc. and the right to purchase additional shares in China Construction Bank Corp.
As part of the loan repurchases, Bank of America’s home loans and insurance business is expected to post a $2 billion writedown in the quarter. The bank said the charge will have no impact on its Tier 1 or tangible equity ratios.
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