By Christina Rexrode And Saabira Chaudhuri 

Bank of America Corp.'s third-quarter earnings delivered a fresh reminder that the shadow of the mortgage crisis is hard to escape.

But now investors are also fretting about the future.

Shares of the Charlotte, N.C., lender fell more than 5% in early afternoon trading as stocks across the board sold off due to fears of a global economic slowdown.

Bank of America, the nation's second largest bank by assets, is viewed as particularly vulnerable to continually low interest rates because of its large base of deposits.

Led by Chairman and CEO Brian Moynihan, Bank of America's management "is doing what they can in an environment that is not particularly friendly to BofA," said Brennan Hawken, a banking analyst with UBS. "It is an extremely strong current that BofA has to swim against."

Bond yields moved lower Wednesday in a sign that investors are more nervous about the economy. Investors are "obviously more cautious that rates may not be moving up at the level that they had" previously thought, said Bruce Thompson, the bank's chief financial officer, on a call with analysts.

Bank of America managed to eke out a small profit, it said Wednesday, but results were crimped because the bank had to take a $4.9 billion charge to help pay for its blockbuster mortgage-securities settlement with the Justice Department in August.

Bank of America reported a profit of $168 million, down from $2.5 billion a year earlier. On a per-share basis, which takes into account the bank's dividend payments to preferred shareholders, the bank reported a loss of a penny, which was better than the nine cents a share loss expected by analysts polled by Thomson Reuters.

Revenue fell 1.5% to $21.21 billion, missing analysts' expectation of $21.36 billion and leaving the bank to rely on cost-cutting to buoy net income.

Despite the legal expenses, Mr. Moynihan said, "I'm still encouraged by what we accomplished this quarter." A bright spot was trading revenue, which rose 9% after adjusting for an accounting change--a better performance than that of Citigroup Inc. or J.P. Morgan Chase & Co., which announced quarterly results Tuesday.

Legal expenses, however, have dominated the bank for as long as Mr. Moynihan has been CEO, since the start of 2010, frustrating investors not only because of their size but also because of the difficulty in predicting them. Mr. Moynihan has previously told investors that the $16.65 billion Justice Department settlement would be the last of the major crisis-era litigation.

In large part because of the settlement, Bank of America logged legal expenses of $5.6 billion for the quarter, five times what it set aside a year ago --and almost as much as the $6 billion that it set aside in all of 2013.

The bulk of this quarter's expense, $4.9 billion, was to pay for the Justice Department settlement. But more mortgage litigation appears to be on the way, even if it's in much smaller increments. Mr. Thompson said in a call with reporters that another $500 million of the litigation accrual was being set aside for other mortgage-related matters. He declined to be specific, but the bank has previously disclosed mortgage-securities lawsuits by private investors.

"There still tends to be this nagging $1 billion here and there in legal costs that just won't go away," Paul Miller, an analyst at FBR Capital Markets, said on the bank's call with analysts.

Mr. Thompson said that the other $200 million of the litigation reserves was related to the global-markets unit in Japan. In August, the bank was ordered by a court in Japan to pay a fine over a 2007 bond deal.

The Justice Department costs also demolished the results of the mortgage unit, which logged a loss of $5.2 billion. The unit hasn't had a quarterly profit since before the financial crisis. This quarter's loss was its biggest since the second quarter of 2011, when the bank announced an $8.5 billion mortgage-securities settlement with private investors.

While the bank is still dealing with litigation related to the housing crisis, it is also suffering from the housing market's inability to enjoy a sustained bounceback. The bank funded $11.7 billion in mortgages during the third quarter, down from $22.6 billion a year ago. Results were higher than the second quarter, which had $11.1 billion in mortgages.

The 9% jump in trading revenue was better than the 7% reported by Citigroup and the 1% reported by J.P. Morgan on Tuesday. Bank of America's fixed-income, currency and commodities trading revenue was up 11% to $2.25 billion, while equities trading revenue was up 6% to $1.03 billion. The bank said that volatility in September encouraged more investing in currencies, as well as gains in mortgages and commodities.

In recent years, Mr. Moynihan has taken the tack of shrinking the bank and cutting costs. The bank slashed a range of expenses, including equipment, marketing and data processing. It shed more than 18,000 jobs over the year, bringing its head count to about 230,000 employees, compared with nearly 290,000 three years ago. The number of branches fell below 5,000 for the first time since 2004, when Bank of America bought FleetBoston Financial Corp.

Total loans and leases ticked down about 5% over the year, though part of that comes from the bank's efforts to avoid loans to riskier customers.

Write to Christina Rexrode at christina.rexrode@wsj.com and Saabira Chaudhuri at saabira.chaudhuri@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Bank of America (NYSE:BAC)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Bank of America Charts.
Bank of America (NYSE:BAC)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Bank of America Charts.