10:05 a.m. | Updated
Despite a drop in revenue and one-time accounting charges, Bank of America on Thursday reported a better-than-expected operating profit in the first quarter, as lower credit losses among consumers and strength on Wall Street offset continuing weakness in its mortgage business.
Still, its revenue decline stands in contrast to the results at other banks like JPMorgan Chase and Wells Fargo, which reported increases in revenue and profit. It also underscores a retrenchment that forced Bank of America out of the top spot as the biggest bank in the United States.
Because of one-time expenses related to how its debt is valued, Bank of America’s net income fell to $653 million, or 3 cents a share, from $2 billion, or 17 cents a share a year ago, while its revenue fell 20 percent to $22.5 billion. Excluding those charges, the company’s revenue was down 2.5 percent to $27.3 billion, while its operating profit was up 38 percent to $3.6 billion.
The bank’s operating income was 31 cents a share and was ahead of analyst estimates of 12 cents a share. Its revenue met expectations.
Related Links
Documents: Bank of America's Press ReleaseThe company’s global markets unit swung to a profit of $798 million, compared with a loss of $768 million in the fourth quarter. Revenue at the division, which includes Bank of America Merrill Lynch, more than doubled from the fourth quarter but was down from the first quarter a year ago.
One bright spot both for the bank and the broader economy were signs that consumers are doing better. At Bank of America, provisions for credit losses fell to $2.4 billion from $3.8 billion in the first quarter of 2011, as fewer commercial loans soured and consumers kept current on everything from auto loans to credit cards.
“Our strategy is paying off,” said Brian T. Moynihan, the bank’s chief executive. “With the economy steadily improving and because of the work we have done to strengthen and simplify our company, we saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year.”
Still, analysts said the host of one-time items created an unusual amount of “noise,” making it harder to get a fix on the underlying performance of the business. Nevertheless, Bank of America shares rose in premarket trading, but more clues will come after the company’s quarterly call with analysts begins at 8:30 a.m.
In a note to clients, an analyst at Oppenheimer, Chris Kotowski, said it was “all in all a very credible quarter” but warned that mortgage liabilities remain a worry for the bank.
After falling sharply last year, Bank of America shares have rallied 60 percent in 2012, on hopes that the improving American economy would benefit the company and slow credit losses. Shares closed at $8.92 on Wednesday, and are up to $9.20 in premarket trading.
Mr. Moynihan has focused on building capital levels and restoring profitability even if it means undoing the sprawling empire built by his predecessors and shrinking the financial giant. Bank of America has also been forced to forgo the dividend increases that rivals like JPMorgan Chase have announced, preferring to build what Mr. Moynihan calls a “fortress balance sheet.”
Bank of America, which required two bailouts at the height of the financial crisis, has also run into trouble from its disastrous 2008 acquisition of Countrywide Financial, a subprime mortgage lender.
Huge mortgage-related losses took a toll on earnings last year, and created fears about the bank’s capital position. Thursday’s results, however, showed an improved Tier 1 capital ratio of 10.78 percent, up from 8.64 percent a year ago.
Bank of America’s stock was down 4 cents to $8.88 in early trading on Thursday morning.
No comments:
Post a Comment