* Sales and trading revenue more than doubles
* Loan loss reserve, expenses decline
* Accounting charges hurt bottom line
* Potential mortgage issues remain concern
By Rick Rothacker
April 19 Bank of America Corp posted
better-than-expected first-quarter earnings on Thursday in the
latest sign that the No. 2 U.S. bank is moving past the mortgage
troubles that have hobbled it since the financial crisis.
The lender, like rivals including JPMorgan Chase & Co
and Wells Fargo & Co, made more U.S. corporate
loans. It also earned more from trading, excluding an accounting
Bank of America, based in Charlotte, North Carolina, was
among the hardest hit of the major U.S. banks, but has been on
the mend. It passed the Federal Reserve's latest stress test in
March, shifting investor concerns from its capital needs to its
ability to increase earnings in a time of low interest rates and
Boosting earnings may be tough for Bank of America. Revenue
dropped again in its signature consumer banking business, which
has been crimped by new regulations. Total loans fell by about 3
percent as decreased consumer lending overshadowed growth in
loans to businesses.
The bank set aside less money to cover bad loans than it has
in any quarter since 2007. Sales and trading revenue, excluding
an accounting charge, was the third highest since the 2009
acquisition of Merrill Lynch.
Bank of America shares rose as much as 2.7 percent, but they
declined with the broader market and ended down 1.7 percent at
$8.77. The stock is up about 58 percent this year after falling
the same amount in 2011.
Bank of America's first-quarter net income was $653 million,
or 3 cents a share, down from $2.05 billion, or 17 cents per
share, a year earlier.
The bank reported charges of $4.8 billion related to changes
in the value of its debt, partially offset by gains of $2.8
billion from equity investments and debt-related transactions.
Excluding debt valuation adjustments, earnings were 31 cents
Analysts' average estimate was 12 cents per share, according
to Thomson Reuters I/B/E/S. The bank said analysts typically do
not include debt valuation adjustments in their estimates.
Total revenue, which included the accounting adjustments,
declined to $22.3 billion from $26.9 billion. The bank took a
loan-loss provision of $2.4 billion, compared with $3.8 billion
a year ago.
In its capital markets operations, Bank of America reported
sales and trading revenue of $3.8 billion, up from $1.5 billion
in the fourth quarter but down from $4.6 billion a year ago.
Excluding the debt valuation adjustment, sales and trading was
up slightly from a year ago.
The bank saw particular strength in its fixed-income trading
operations as worries about the European debt crisis decreased.
The improved performance came even as the bank held less risky
assets compared with a year ago.
Morgan Stanley also on Thursday reported
better-than-expected results, helped by strong trading revenue.
Bank of America's tier 1 common equity ratio, comparing its
core equity capital to its risk-weighted assets, rose to 10.78
percent under current rules from 9.68 percent in the fourth
quarter as it issued shares to employees, shed assets and
Chief Financial Officer Bruce Thompson said in a conference
call with analysts that the bank expects to have a Tier 1 common
equity ratio of more than 7.5 percent by year end under future
capital standards -- so-called Basel III rules. The bank's
previous estimate was 7.25 percent to 7.5 percent.
Under rules that are still being finalized, big banks will
likely need to get to around 9.5 percent by 2019, although many
expect to get there much sooner.
"They continue to show they are accelerating the pace to get
to that number," said Marty Mosby, an analyst with Guggenheim
How fast Bank of America gets there will depend on how much
more the bank ends up spending on mortgage-related lawsuits and
losses, largely tied to its 2008 purchase of Countrywide
Financial, Mosby said. He estimated those after-tax losses could
range from $15 billion to $40 billion.
Profits were up in the bank's five business units from the
previous quarter, but revenue in the consumer and business
banking unit continued to trend down.
Thompson said credit card loans declined for seasonal
reasons and that a decline in home-equity loans was intentional,
as the bank looked to shed riskier real estate-related assets.
"We feel we have a good base to start growing from," he said.
With revenue harder to come by, Bank of America Chief
Executive Brian Moynihan is looking to cut costs to boost
profits. Last year the bank launched an efficiency program
called Project New BAC that is expected to eliminate 30,000 jobs
in consumer and technology areas over the next few years and
reduce annual expenses by $5 billion.
In Thursday's conference call with analysts, Thompson said
the bank expects to wrap up plans for the second phase of New
BAC in May. That segment, focusing on capital markets, wealth
management and commercial banking, is expected to produce a
smaller reduction in expenses and jobs because these businesses
are more efficient and have fewer employees.
First-quarter expenses fell 5.6 percent to $19.1 billion.
In addition to cutting jobs, the bank has said it plans to
shed 750 branches over the next few years. Total banking centers
declined by about 50 to 5,651. The bank could look to sell some
branches in low-performing markets, Moynihan said on the call.
Moynihan and Thompson declined to comment on the possible
sale of its wealth management units outside the United States.
Reuters reported this week that the bank hopes to bring in up to
$3 billion from the sale.