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3rd UPDATE:Bank of America Takes Big Charge,Posts Mixed Revenue


NEW YORK (Dow Jones)--Bank of America Corp.'s (BAC) third-quarter earnings showed the withering effects of new financial regulations, even as the giant Charlotte bank took advantage of its size to generate higher revenue from mortgage banking and fixed-income trading.

The biggest U.S. bank by assets swallowed a $10.4 billion goodwill impairment charge as it posted a $7.3 billion loss for the quarter. The charge was at the high end of what the bank forecast in mid-July and in essence means its credit-and-debit card business is less valuable than before because new financial regulations will shrink the business's earnings. Without the $10 billion-plus non-cash charge, the bank would have earned $3.1 billion.

Credit improved, bolstering earnings; the bank released $1.8 billion of its loan-loss reserves, higher than the $1.5 billion it released in the second quarter.

The bank, which has 5,900 branches nationwide, reported higher revenue from originating mortgages, up to $2.4 billion from $2.1 billion a year ago.

Bank of America's investment bank, which includes its Merrill Lynch unit--purchased during the financial crisis--earned $1.4 billion, compared with $900 million a quarter before. The investment bank notably turned in sharply higher revenues from fixed-income trading compared to a quarter before, at $3.5 billion. By contrast, fixed-income revenues fell in the quarter at competitors Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS).

The bank also paid out $400 million for claims tied to mortgage representations and warranties, and issued a murky forecast for how high--and long--those costs could eventually run. Banks have faced a rising number of "reps and warranties" claims, which refer to complaints from buyers of mortgages--especially government agencies Fannie Mae and Freddie Mac--that Bank of America and other big banks issued mortgages with faulty underwriting or documentation, and now must compensate them when the loans fail.

Bank of America has already spent more than $3.3 billion to pay such claims and in recent weeks the bank's top executives had been facing pressure to say more about how high those costs could rise. During a conference call with investors Tuesday, Chief Executive Brian Moynihan and Chief Financial Officer Charles Noski said the bank's quarterly costs to deal with such claims would be "lumpy" in future quarters and would continue affecting the bank's profits "over the next couple years."

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