BANK OF America earned $340 million in the third quarter, compared with $6.2 billion a year earlier, as a charge to settle a shareholder lawsuit almost wiped out profits.

The second-biggest US bank by assets reported revenues of $20.7 billion compared with $28.7 billion a year earlier. An accounting treatment that forces banks to take profits or losses on movements in their own credit spreads hit earnings by $1.9 billion.

“Our strategy is taking hold even as we work through a challenging economy and continue to clean up legacy issues,” said Brian Moynihan, chief executive.

BofA cut more than 20,000 jobs in the last year, the company revealed in its third-quarter earnings release, while continuing to add staff to the division that deals with problem mortgages.

The bank – which came out of the financial crisis in worse shape than peers such as Wells Fargo and JPMorgan Chase – is in the middle of a cost-cutting plan that attempts to save $5 billion and will lead to the loss of over 30,000 jobs.

One of the legacy issues was settled in the quarter when the bank agreed to pay $2.4 billion to settle a shareholder lawsuit alleging it concealed information about the financial health of Merrill Lynch, the securities group it bought in 2008. Of the $2.4 billion, $1.6 billion was not covered by existing litigation reserves, BofA said, forcing it to take a charge that hit earnings hard, bringing diluted earnings per share to zero for the quarter – still better than the seven US cents a share loss analysts had expected.

The shareholder suit alleged that BofA hid from investors the losses that were being racked up inside Merrill in the run-up to the acquisition and the fact that Merrill executives would receive billions of dollars in bonuses.

Revenue in BofA’s consumer business fell from $8.1 billion to $7.1 billion, bringing net income down from $1.7 billion to $1.3 billion. The bank blamed the new so-called Durbin regulation which limits the fees charged to customers when they use debit cards.

BofA reported its capital levels had strengthened markedly, from 7.95 per cent core “tier one” common equity to risk-weighted assets in the previous quarter to 8.97 per cent under the new Basel III standards. – (Copyright The Financial Times Limited 2012)