Bank of America Profit Tops Expectations
JONATHAN STEMPEL, Reuters, July 21, 2008 at 9:10 AM EDT
NEW YORK — Bank of America Corp Monday reported a quarterly profit that fell less than expected, as improved investment banking results offset a surge in bad loans, causing shares of the largest U.S. retail bank and mortgage lender to soar.
Though the 41 per cent drop in earnings was the bank's fourth straight quarterly decline, Bank of America became the fourth of the five largest U.S. banks to top forecasts, joining Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co.
The bank also said its July 1 purchase of Countrywide Financial Corp, once the nation's largest mortgage lender, will add to profit faster and result in deeper cost cuts than previously estimated.
“It suggests the credit crisis isn't as bad as people thought” for lenders, said Steve Roukis, managing director at Matrix Asset Advisors Inc in New York, which invests $1.4-billion (U.S.). “A week ago there was tremendous fear about systematic risk to the system. There's definitely a floor here.”
Second-quarter net income for the Charlotte, North Carolina-based bank fell to $3.41-billion, or 72 cents per share, from $5.76-billion, or $1.28, a year earlier.
Results included $212-million of merger and restructuring costs. Net revenue increased 4 per cent to $20.32-billion.
Analysts on average expected profit of 48 cents per share on revenue of $18.26-billion, Reuters Estimates said.
Profit nearly tripled from the first quarter's $1.21-billion, as write-downs tied to disrupted capital markets fell by more than half to $1.22-billion.
Chief Executive Kenneth Lewis said the bank had “solid results in a difficult financial environment,” with good results in virtually all businesses not tied to real estate.
Bank of America shares rose $3.11, or 11.3 per cent, to $30.60 in pre-market trading.
Results excluded a $2.33-billion loss at Countrywide, acquired the day after the quarter ended, that reflected just under $4-billion of credit-related losses.
Bank of America expects the $2.5-billion merger to add to profit in 2008, after earlier saying it would not affect earnings per share for the year.
It also said it significantly increased estimated cost savings from an original $670-million.
Bank of America is the nation's second-largest bank by assets, including the Countrywide acquisition.
Citigroup, the largest U.S. bank by assets, on Friday posted a milder-than-expected $2.5-billion quarterly loss. JPMorgan and Wells Fargo, the third- and fifth-largest banks, said profit fell a respective 53 per cent and 23 per cent.
Wachovia Corp, the fourth-largest U.S. bank, has said it may post a $2.6-billion to $2.8-billion loss when it reports results on Tuesday.
“The key word is improvement,” said Matt McCall, president of Penn Financial Group in Denver. “That's the first step of really forming a bottom in the financials.”
Bank of America's corporate and investment bank saw profit rise 3 per cent to $1.75-billion, as write-downs on collateralized debt obligations dropped to $645-million from the prior quarter's $1.47-billion.
Profit in consumer and small business banking fell 66 per cent to $812-million. In wealth and investment management, profit fell 1 per cent to $573-million.
Bank of America more than tripled the amount it set aside for bad loans to $5.83-billion, largely for consumer and commercial portfolios directly tied to the housing market, including home equity, residential mortgages and homebuilding.
The provision was nearly as large as the first quarter's $6.01-billion. Net charge-offs more than doubled from a year earlier to $3.62-billion from $1.5-billion.
Bank of America's Tier-1 capital ratio, a measure of its ability to cover losses, rose to 8.25 per cent from the first quarter's 7.51 per cent. Regulators say 6 per cent signals a “well-capitalized” bank.
Bank of America ended the quarter with 6,131 branches in the United States and $1.72-trillion of assets. Through Friday, the bank's shares had fallen 33 per cent this year, compared with a 29 per cent decline in the KBW Bank Index.
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