* 3rd-qtr profit 20 cents/share vs Street view 18 cents
* Provision for credit losses falls 83 pct to $296 mln
* Three of bank's five businesses post weaker results
By Peter Rudegeair
Oct 16 Bank of America Corp posted a
higher-than-expected quarterly profit on Wednesday as growth in
its consumer and wealth management arms underscored the bank's
progress in stitching together businesses it picked up in the
Profit at the bank's largest unit, retail banking, soared 32
percent as revenue rose and credit costs fell. The unit includes
parts of Countrywide Financial Corp, the mortgage lender
acquired by the bank in July 2008, and Merrill Lynch, the retail
brokerage it bought in January 2009.
A key rationale for both those deals was the ability to sell
a wide range of consumer banking products to Merrill Lynch and
Countrywide customers, executives said at the time.
The bank said it issued more than 1 million credit cards in
the third quarter, the highest number since 2008, and nearly
two-thirds went to existing customers.
"We feel like a lot of the work that we have been doing in
that segment has paid off," Chief Financial Officer Bruce
Thompson told reporters on a conference call.
Profit at Bank of America's wealth management business also
rose in the quarter, up 26 percent to $719 million thanks to
record asset management fees.
To be sure, crisis-era acquisitions caused headaches for the
bank, too. Its mortgage business lost $1 billion in the third
quarter, compared with a loss of $857 million a year earlier.
Countrywide has cost Bank of America more than $40 billion in
litigation expenses and other charges linked to its bad subprime
mortgages, and the bank set aside an additional $300 million for
mortgage litigation in the latest quarter.
And Merrill Lynch's institutional sales and trading arm lost
$778 million, up from a loss of $276 million in the same quarter
last year, hurt by a 20 percent drop in fixed income, currency,
and commodities trading revenue, excluding an accounting
But investors were hopeful about the results, and Bank of
America shares rose 2.2 percent to $14.59 in afternoon trading.
"All of the past issues related to Countrywide are masking a
very good, vibrant and attractive retail banking and credit card
business," said Joel Conn, president of Lakeshore Capital LLC in
Birmingham, Alabama. "The issues will eventually go away.
Today's earnings appear to make that case."
Bank of America earned net income for common shareholders of
$2.22 billion, or 20 cents per share, in the third quarter,
beating analysts' average estimate of 18 cents per share,
according to Thomson Reuters I/B/E/S.
In the year-earlier quarter, the bank recorded a net loss
for common shareholders of $33 million due to accounting
adjustments, litigation expenses and tax charges.
Since Brian Moynihan became chief executive in 2010, one of
the bank's primary areas of focus has been slashing costs. In
2011, it announced its Project New BAC initiative, an effort to
save $8 billion per year by the end of 2014. The bank said it is
on track to achieve its goal of saving $1.5 billion per quarter
by the end of this year.
Overall expenses were $16.39 billion in the third quarter,
down $1.16 billion from a year earlier. Bank of America did cut
costs from its legacy assets and servicing business, which deals
with bad mortgages. Excluding legal costs, expenses in that unit
were $2.2 billion, down from $2.9 billion a year earlier. The
bank is aiming for $2 billion a quarter by the end of the year.
Chief executives at most major U.S. banks are looking to cut
costs because revenue growth is so slow. Citigroup Inc CEO
Michael Corbat on Tuesday highlighted the bank's expense
controls, noting that it has more power over costs than revenue.
Bank of America experienced that pressure itself: Revenue
fell 1.5 percent to $22.19 billion in the third quarter,
excluding gains and losses from changes in the value of the
Part of that decline came from a drop in mortgage lending
revenue. The bank's "core production" revenue from home loans
fell to $465 million from $944 million in the same quarter last
Moynihan said on a conference call that the bank expects
mortgage loan production to fall again in the fourth quarter. He
said the bank would continue to reduce mortgage banking staff
with the decline in volume.
"It'll never be a huge business for this company," given the
competition and thin profit margins, Moynihan said.
When Bank of America bought Countrywide, it felt
differently. Ken Lewis, then chairman and chief executive, said
mortgages were one of the three cornerstone consumer financial
products, and that the bank wanted to increase market share in
In the latest quarter Bank of America was helped by the
improved performance of its loan portfolio. It wrote off $1.69
billion of loans, down from $4.12 billion a year earlier.
Thompson said loan losses would decline further by the end
of the year and stabilize next year at $1.5 billion per quarter.
Sales and trading revenue for the bank's fixed income,
currency and commodities business, excluding an accounting
adjustment, fell by $501 million to $2.0 billion due to lower
bond-trading volumes for much of the quarter.
Fixed-income traders were inactive for several weeks leading
up to the Federal Reserve's meeting in mid-September in the
expectation that the central bank would announce that it was
starting to wind down its bond-buying stimulus program.
Bank of America sold its remaining stake in China
Construction Bank Corp for $1.47 billion in
September, contributing $750 million pre-tax to the bottom line.
The bank's shares have risen 23 percent this year, in line
with gains in the KBW index of bank stocks.