Bank of America Corp's (BAC.N) revenue fell across almost all its businesses in the first quarter, and the bank was hit yet again by mortgage mess cleanup costs, showing the difficulties Chief Executive Brian Moynihan faces in moving past the housing crisis.
Many of the bank's revenue generators - including consumer banking, mortgages and debt, currency and commodities trading - turned in weaker performances. All told, adjusted revenue fell 8.4 percent to $23.85 billion.
Bank of America shares closed down 4.7 percent at $11.70 on Wednesday.
The results suggest that Bank of America's purchase of Countrywide Financial at the height of the housing crisis is still haunting the bank even though Moynihan has said the end is in sight. They also show that the bank may be recovering from the financial crisis more slowly than Citigroup Inc (C.N), the other big bank that required multiple government bailouts.
"There is enormous earnings capability here, and we're certainly not seeing Bank of America perform to the extent it should be able to," said Gary Townsend, chief executive of Hill-Townsend Capital in Chevy Chase, Maryland, which owns a small position in the bank's stock. "We have great bones here, but we need more muscle to get this thing going the way it needs to go."
In a conference call with journalists, Chief Financial Officer Bruce Thompson said the drop in revenue, excluding accounting adjustments, reflected strong markets business and debt security gains a year earlier, and the tougher environment for interest rates in the first quarter of this year.
There were some bright spots at the Charlotte, North Carolina-based bank, too. It made more home loans, and investment banking fees increased. Revenue in its wealth management business rose, which could bode well for Morgan Stanley (MS.N), due to report quarterly results on Thursday.
Net income quadrupled as expenses dropped and the bank set aside less money to cover bad loans. But Wall Street analysts were expecting an even bigger gain, and the comparison was flattered by a host of one-time items, including a year-earlier charge of $4.8 billion related to the value of the bank's debt.
The bank said on Wednesday it had settled three mortgage-backed securities lawsuits related to its Countrywide unit for $500 million, the latest in a series of mortgage settlements for Bank of America.
Moynihan hopes the end of settlements is in sight, and aims to reduce expenses in the division that handles delinquent mortgages by $1 billion per quarter by the end of 2013. He has also pledged to cut $8 billion in expenses companywide annually by mid-2015.
The bank, the last of the big four U.S. banks to report first-quarter results, said on Wednesday it expects quarterly savings on expenses of about $1.5 billion by the fourth quarter of 2013, representing 75 percent of the quarterly target. In the first quarter, expenses fell 5.2 percent to $18.15 billion.
As with other big banks this quarter, Bank of America results received a boost from reduced credit losses as borrowers did a better job of making their payments. The bank's provision for loan losses fell 29.2 percent to $1.71 billion.
Net income jumped to $2.62 billion, or 20 cents a share, from $653 million, or 3 cents, a year earlier.
Analysts on average had expected 22 cents a share, according to Thomson Reuters I/B/E/S.
The drop in the top line was a disappointment as well. Contributing to the overall revenue decline was a sharp drop in revenue from the fixed income, currency and commodities markets, down $829 million to $3.3 billion.
Revenue in the Global Banking division stagnated at $4.23 billion, though investment banking fees rose 26 percent, driven by debt underwriting and advising on deals.
In the Global Markets arm, sales and trading revenue, excluding an accounting adjustment, fell to $4.45 billion from $5.19 billion.
Revenue from Consumer and Business Banking dropped by $208 million to $7.21 billion because of a decline in net interest income as consumer loan balances dropped and low rates held back asset yields.
Wealth management defied the overall trend. Revenue from the Global Wealth and Investment Management arm climbed 7 percent to $4.42 billion. Long-term assets under management rose by a record $20.4 billion.
MORTGAGE LENDING JUMPS
Bank of America said it extended more mortgage loans in the quarter, even as the home refinancing boom cooled. It issued $24 billion of first-lien mortgages, up 57 percent from a year earlier and up 11 percent from the 2012 fourth quarter.
The bank has missed out on much of the home lending boom because it scaled back its mortgage business after taking huge losses on its disastrous purchase of subprime lender Countrywide Financial in 2008. In recent quarters, it has been adding loan officers in an effort to win back market share.
Bank of America's litigation expenses for the first quarter fell to $881 million from $916 million in the fourth quarter of 2012 and $793 million a year earlier.
The bank won permission from the Federal Reserve in March to buy back $5 billion in common stock after passing the annual stress test of big banks. The bank said stock repurchases would start in the second quarter.
(Reporting by Rick Rothacker in Charlotte, N.C., and Tanya Agrawal in Bangalore; Writing by Frank McGurty; editing by Supriya Kurane, John Wallace and Matthew Lewis)