April 19 - Bank of America (BAC) reported first quarter 2012 (1Q'12)
net income of $653 million, down from $2.0 billion in 4Q'11, according to Fitch
Ratings. Notably, each quarter was impacted by spreads on BAC's debt
tightening during 1Q'12, after having widened in 4Q'11. The impact to 1Q'12
results was a pre-tax negative valuation adjustment of $4.8 billion. Underlying
this adjustment Fitch views BAC's businesses to be improving and performing
reasonably well, particularly compared to the sequential quarter.
Pre-tax operating profits as calculated by Fitch increased sharply to $3 billion
versus negative $0.7 billion in 4Q'11. Operating profitability, as measured by
the pre-tax operating return on assets (ROA), reached 0.5%. This performance
remained significantly below the average of the top six U.S. banks. These
figures exclude DVA adjustments and various other gains/charges,
The largest boost to BAC's 1Q'12 earnings came from its global markets business
which had a significant increase in trading account profits due to improved
customer flows in fixed income trading as well as modestly higher investment
Additionally, mortgage banking income remained good thanks to higher production
levels partially offset by lower servicing income and an additional $282 million
of representation and warranty provisioning. Fitch expects both global markets
and mortgage banking sources of revenue to remain volatile and largely dependent
on market and economic conditions.
BAC's net interest yield modestly ticked up to 2.51% in 1Q'12 from 2.45% in
4Q11, which was impacted from BAC's modestly higher average asset yields while
holding average interest costs relatively steady from the sequential quarter.
Fitch notes that this yield is lower than some of BAC's peers.
Non-performing assets ticked up due almost exclusively to industrywide
regulatory guidance on non-accrual loan policies for junior lien consumer real
estate loans when the first lien mortgage becomes 90 days past due. As a
result, BAC reclassified $1.9 billion of home equity loans to non-performing
status. Even though most other loan categories exhibited improvements in
non-performing loans, Fitch notes that this reclassification unfavorably
impacted asset quality ratios.
BAC estimates that its net exposure to European countries: Greece, Ireland,
Italy, Portugal, and Spain were $9.8 billion at March 31, 2012.
As BAC's total loan portfolio has shrunk from both the sequential and year-ago
quarters, this combined with modest profitability, and other reductions in
risk-weighted assets has enhanced the company's regulatory capital ratios. At
1Q'12, BAC's Tier 1 common ratio improved to 10.78% from 9.86% in 4Q'11 and
8.64% in 1Q'11. Fitch views this improvement in capital ratios favorably.