Billionaire Warren Buffett has predicted Bank of America will become a profit powerhouse once it finally resolves legal battles that have sapped funds and distracted managers. Now we’ll find out if he’s right.
Bloomberg News reports that CEO Brian Moynihan settled what he has called the firm’s last big fight over faulty home loans on Thursday, reaching a record deal for almost $16.7bn to end U.S. probes of mortgage-bond sales that fueled 2008’s financial crisis.
Since Moynihan took control in 2010, the bank has agreed to more than $70bn in deals to resolve claims from the housing bust.
If the surge in litigation does abate, investors inured to years of unpredictable earnings can focus squarely on the underlying performance of businesses at the Charlotte, North Carolina-based bank. Moynihan, 54, has blamed past disappointments on legal costs and related distractions.
'We believe they have a wonderful franchise -- the question now is, ‘Do they ?’' said Greg Donaldson, chairman of Evansville, Indiana-based Donaldson Capital Management LLC, which manages $950m. 'If they do, their earnings will move sharply up, because all of their energies will be poured into making their businesses better. If that isn’t the case, it will show up pretty fast.'
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