Bank of America profit up 5 pct, card losses rise

NEW YORK (Reuters) - Bank of America Corp. (BAC.N), the second-largest U.S. bank, said on Thursday that first-quarter profit rose 5 percent, as investment banking growth helped offset higher loan losses and deposit costs.

Earnings growth was the slowest since the fourth quarter of 2005, and profit fell in the bank's three main business lines. Though earnings topped forecasts, revenue fell short. Analysts expressed concern about a 37 percent jump in credit-card losses.

"I'm definitely lukewarm," said Michael Mullaney, who helps invest $10 billion at Fiduciary Trust Co. in Boston. "Core businesses fared just OK, and the card portfolio is a concern because the bank is reserving more for losses. While investment banking looked good, the competition was stronger."

Citigroup Inc. (C.N) and JPMorgan Chase & Co. (JPM.N), the bank's main rivals, this week also reported solid investment banking results, as well as credit deterioration.

Net income for Charlotte, North Carolina-based Bank of America climbed to $5.26 billion, or $1.16 per share, from $4.99 billion, or $1.07, a year earlier.

Excluding items, profit totaled $5.33 billion, or $1.17 per share. Revenue rose 3 percent to $18.42 billion. Non-interest expenses rose 2 percent to $9.1 billion.

Analysts on average forecast profit of $1.15 per share on revenue of $18.48 billion, according to Reuters Estimates.

Results included a 3 cents-per-share benefit from releasing credit reserves after some Latin America divestments. The bank's work force shrank by 3,996 people from year end, to 199,429.

"The competitive landscape continues to be intense (and) the yield curve is very challenging," Chief Executive Kenneth Lewis said on a conference call. "The first quarter reflected good customer-driven metrics across the board versus a year ago, but these positive trends were somewhat hidden."

Citigroup's first-quarter profit fell 11 percent to $5.01 billion. Profit for JPMorgan rose 55 percent to $4.79 billion. Investment banking profits surged 36 percent and 81 percent, respectively, at the New York banks.

Bank of America shares fell 73 cents, or 1.4 percent, to $51.09 in afternoon trading on the New York Stock Exchange.

CARD LOSSES RISE

Bank of America said investment banking revenue climbed 35 percent, helped by higher merger advising and securities underwriting fees. Trading profit nearly doubled from the fourth quarter, to $872 million.

The card business, the nation's largest following the January 2006 purchase of MBNA Corp., boosted revenue 16 percent to $2.45 billion, as it added 3 million accounts.

However, the rate of managed card charge-offs rose to 4.73 percent from 3.12 percent, and the rate of managed card loans 30 days past due rose to 5.32 percent from 4.54 percent.

Bank of America set aside $1.24 billion overall for credit losses, down 2 percent, but net charge-offs soared 74 percent to $1.43 billion.

"MBNA really increased their exposure to consumers on the unsecured side," said Keith Davis, an analyst at Farr, Miller & Washington, which invests $560 million. "This could come back to haunt them if mortgage problems spread."

In an interview, Chief Financial Officer Joe Price said consumer card losses may decline in the second half, and then "normalize" by 2008 or 2009.

On the call, he also said write-offs for residential and home equity loans were "at the low end of industry ranges."

MARGIN SHRINKS

Net interest margin fell to 2.61 percent from 2.98 percent a year earlier, and the fourth quarter's 2.75 percent, as customers sought out higher-cost deposits.

"Results certainly showed interest rate pressures," said Joseph Dickerson, an analyst at Atlantic Equities in London. "The net interest margin was lower than I was looking for."

Profit fell 1 percent in consumer and small business banking to $2.7 billion, 5 percent in corporate and investment banking to $1.45 billion, and 2 percent in wealth and investment management to $531 million.

Overall net interest income fell 5 percent to $8.6 billion, while fee income rose 10 percent to $9.83 billion.

The bank ended March with $1.5 trillion of assets. Through Wednesday, its shares had fallen 3 percent this year, while the Philadelphia KBW Bank Index .BKX was little changed.

(Additional reporting by Dan Wilchins)