Bank of America Leans on Montag for Investment Bank's $6.3 Billion Profit

Bank of America Corp., the largest U.S. bank by assets, earned $6.3 billion from its global banking and markets division last year, giving that business almost double the annual profit of any other segment.

The unit earned $724 million for the fourth quarter, according to a statement today from the Charlotte, North Carolina-based bank. While that was down 50 percent from a year earlier because of higher costs and taxes, advisory and underwriting was the highest for 2010 as equity offering fees jumped 45 percent from the third quarter, and Chief Executive Officer Brian T. Moynihan called the full year “solid.”

Bank of America has leaned on the investment bank, led by former Goldman Sachs Group Inc. trading head Thomas Montag, to bolster earnings since the 2009 takeover of Merrill Lynch & Co. Profits from trading and underwriting last year gave Moynihan a cushion to absorb losses and writedowns in retail home loans and credit cards.

“Montag’s business has held them up, it’s been a source of revenue that has offset the disaster their mortgage division has turned into,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “The sales and trading guys and underwriting guys on the debt side made a lot of money for Bank of America last year.”

Bank of America reported a $1.24 billion fourth-quarter loss, its second consecutive deficit, as the lender boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit.

Global Wealth

The global wealth and investment management unit, which includes the Merrill Lynch brokerage, posted quarterly net income of $332 million. That’s up from $257 million in the third quarter and down from $529 million a year earlier. The unit is run by Sallie Krawcheck, 46, the former chief financial officer of Citigroup Inc. and ex-head of the New York-based bank’s global wealth management unit.

“The wealth management business is delivering,” said Ania Aldrich, who helps manage $5.3 billion for Denver-based Cambiar Investors LLC, including 8 million warrants to buy Bank of America shares. “There is tremendous potential for leveraging this franchise with the core Bank of America, cross-selling banking products to high-net worth individuals and vice-versa.”

Montag, 54, has been expanding operations overseas, especially in Asia. Montag was based in Tokyo and Hong Kong from 1998 through 2006 as a Goldman Sachs executive, including five years as co-president of Japan. Merrill announced it had hired Montag in April 2008, a few months before the firm agreed to be sold to Bank of America.

Fixed Income

Trading revenue fell to $2.59 billion in the quarter, as the bank faced what it called a “difficult” environment. Bank of America is still “comfortable” with its target of generating $4.5 billion to $5 billion in trading revenue per quarter, Moynihan, 51, said on a conference call with analysts. Trading revenue for the year was $17.3 billion, down 1.8 percent from 2009.

The division generated $1.8 billion of revenue from fixed- income trading in the fourth quarter, up 40 percent from a year earlier. That figure, down 49 percent from the third quarter, trailed JPMorgan Chase & Co.’s $2.88 billion and beat Goldman Sachs’s $1.64 billion.

Citigroup Inc. posted fixed-income revenue of $2.3 billion excluding charges related to its own credit spreads, while Morgan Stanley reported $813 million excluding the charges.

Bank of America’s unit generated $789 million from equities trading, a 19 percent decrease from the third quarter. That trailed JPMorgan’s $1.13 billion and Goldman Sachs’s $2 billion.

‘Tougher Quarter’

“It was just a tougher quarter in terms of client activity and tougher quarter in terms of market, and it’s not any one area,” Moynihan said. “I really chalk it up to sort of a malaise and tougher market quarter.”

Bank of America’s equity underwriting revenue climbed to $496 million from $341 million in the third quarter, while fees from bond offerings increased 9 percent to $869 million. The firm was the third-ranked underwriter of U.S. bonds and the fourth-ranked underwriter of global equity offerings in 2010, according to data compiled by Bloomberg.

Montag’s group also generated $337 million from its advisory work, down 6 percent from a year earlier. It was the ninth-ranked adviser on announced global mergers and acquisitions last year, according to data compiled by Bloomberg.

“The investment banking business tends to be cyclical and they can’t count on what they earned in 2010 next year,” Plath said.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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