Studying Bank of America's earnings report, Floyd Norris at the NY Times found numbers more interesting than BofA's $6.2bn income. The good news aside, Norris found a trend that suggests BofA is failing to move past all the bad mortgages it previously sold. According to him, the bank set aside only $278 million in Q3 for representations and warranties claims. It is that number, not the $1.79 billion in charge-offs in the quarter, that affects reported profit. That is the lowest quarterly figure for additions to that reserve at least since the fourth quarter of 2009. Here is the trend Norris reported:

Q4 2009: $516 million

Q1 2010: $526 million

Q2 2010: $1.248 billion

Q3 2010: $872 million

Q4 2010: $4.140 billion

Q1 2011: $1.013 billion

Q2 2011: $14.037 billion

Q3 2011: $278 million.

The fact that BofA has reserved less cash for representations and warranty claims is potentially a sign that the problem is going away. It's also not surprising that the Q3 reserve was so small after the massive outlay in Q2. But according to Norris, the decline was not because new claims have dried up. They amounted to $3.8bn in the quarter, $99mn more than in the previous quarter. The bank said the new claims come mainly from Fannie Mae and Freddie Mac, the government-sponsored enterprises. The demands from Fannie and Freddie, the bank says, “have become increasingly inconsistent with our interpretation of our contractual obligations.” The process, it would appear, is getting nastier. Therefore, in Norris' view, the low provision does not mean final settlements are near. [NY Times, 10/18/11]