(Adds investor and analyst reaction)
By Peter Rudegeair and Anil D'Silva
Jan 15 Bank of America Corp said on
Wednesday its quarterly profit surged by nearly $3 billion as
revenue increased and mortgage losses plunged, the clearest sign
yet the bank was shaking off the impact of the financial crisis.
The results for the second largest U.S. bank were strong
across most businesses, with consumer banking having its best
quarter since 2011 and the wealth management and global banking
divisions posting record revenues.
"They're showing some positive momentum on growing their
customer base and their revenues," said Jonathan Finger of
Finger Interests Ltd, a Houston investment firm that owns shares
in the bank. "Certainly the stock has been performing very
Bank of America's shares rose 2.3 percent to $17.15 on
Wednesday, after earlier rising to $17.42, the highest level
since May 2010. The bank's shares rose 34.6 percent last year,
outpacing the broader market, and have risen some 250 percent
from their post-crisis nadir in December 2011.
Bank of America has been groaning under the weight of bad
mortgages it took on when it bought Countrywide Financial Corp
in 2008, just before the housing crisis turned into a full-blown
banking meltdown. The purchase has cost it more than $45 billion
in write-downs and legal settlements.
On Wednesday, the bank said losses in its mortgage unit fell
to $1.1 billion in the fourth quarter from $3.7 billion in the
same period in 2012. In the year-earlier quarter, the bank
reached several settlements totaling more than $5 billion with
the federal government and mortgage finance giant Fannie Mae
over foreclosures and bad loans.
Results in the most recent quarter were hurt by an
industry-wide drop in mortgage refinancing activity, as rates
have risen. The bank made $11.6 billion in home loans, down 49
percent from the third quarter.
Not all of the lingering problems from the financial crisis
are behind the bank. Litigation expenses jumped to $2.3 billion
in the fourth quarter from $916 million in the same period a
year earlier. Chief Financial Officer Bruce Thompson said the
increase was tied to mortgage securities litigation, but
declined to elaborate.
Even so, the company is in a much stronger position than it
was during the financial crisis, when it took two bailouts from
the federal government. A measure of its capital that regulators
look at, known as the Basel III capital ratio, rose to 9.96
percent from 9.25 percent in the fourth quarter of 2012, and the
bank said it could last 38 months without having to tap the debt
Overall, fourth-quarter net income for common shareholders
rose to $3.18 billion, or 29 cents per share, from $367 million,
or 3 cents per share, in the same quarter of 2012, when profit
was dented by about $5 billion in mortgage-related charges.
Revenues increased 14 percent to $22.3 billion. Analysts
estimated earnings of 26 cents per share, according to Thomson
"There's a company emerging from what was a pile of
trouble," said Nancy Bush, a banking analyst at NAB Research
Other banks are doing well now, too. JPMorgan Chase & Co
and Wells Fargo & Co both reported
better-than-expected quarterly earnings on Tuesday.
Bank of America's improvement has been helping one investor
in particular: Warren Buffett, whose Berkshire Hathaway Inc
bought $5 billion of preferred shares and
warrants from the bank in 2011, when investors were panicking
about its mortgage holdings. Buffett has said he has no plans to
exercise the warrants until near their expiration date in 2021;
if he exercised them at current prices, he could sell the shares
for an immediate $7 billion profit.
Bank of America's chief executive officer, Brian Moynihan,
has focused on cutting costs at the bank since he took the top
job in 2010 and announced plans in 2011 to save the bank $8
billion per year. The bank is making progress toward his goals -
operating costs in the fourth quarter fell by 6 percent to $17.3
"If you think back three years when he got there, nobody
believed that he could do what he's done," said Bush. "He's like
a little terrier. When you set him on a task, he's going to keep
digging and digging til he finds the bone."
Credit costs have also been falling. The bank set aside $336
million to cover bad loans in the quarter, compared with $2.2
billion a year earlier. It released $1.2 billion from reserves
to cover bad loans, compared with $900 million a year earlier
and $1.4 billion in the third quarter.
As the bank's executives get other issues under control,
Moynihan said last April, boosting revenue has to be the main
Those efforts may be paying off. For the fourth quarter,
Bank of America's global wealth and investment management
business posted a 7 percent increase in revenue, to $4.5
billion, driven by higher fee income and customers depositing
more funds into their accounts. Net income rose 35 percent to a
record $777 million.
Revenue also rose in investment banking, where fees
increased 9 percent to $1.7 billion as companies around the
world took advantage of record high stock prices to raise equity
capital. Bank of America executives were optimistic the bank
would benefit as dealmaking activity and debt and equity
"There's not one piece we look at within the pipelines that
we don't feel good about," Thompson said on the call.
Revenue for global banking as a whole rose 9 percent to
$4.31 billion, but net income dropped 9 percent to $1.27 billion
as the company set aside more funds to cover possible losses on
Equity trading revenue jumped 27 percent to $904 million
from a year earlier, and bond trading revenue rose 16 percent to
$2.08 billion, excluding accounting adjustments linked to
changes in the value of the company's debt. In bond trading,
stronger results in credit and mortgage products offset weakness
in rates and commodities.
(Reporting by Peter Rudegeair in New York and Anil D'Silva in
Bangalore; Editing by Dan Wilchins, Ted Kerr, Jeffrey Benkoe and