Bank of America Investment Bank Loses Again Under Montag

Bank of America Corp. reported a second consecutive loss at its investment bank as trading chief Thomas K. Montag grappled with the European sovereign-debt crisis.

Montag’s global banking and markets division, which includes trading and underwriting operations, posted a $443 million fourth-quarter loss, following a $302 million loss in the preceding three-month period, the Charlotte, North Carolina- based bank said today in a statement. The unit had a $669 million profit in the fourth quarter of 2010.

The results echoed those of rivals JPMorgan Chase & Co., Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS), which reported declines in trading and investment banking amid investor concern that the most indebted European nations may default. Chief Executive Officer Brian T. Moynihan said Dec. 6 that investment- banking results had improved from the third quarter, when revenue plunged more than 70 percent.

“It’s the nature of the beast in the investment-banking and trading businesses to experience quarterly volatility,” said Marty Mosby, an analyst at Guggenheim Securities LLC in Memphis, Tennessee. “During the fourth quarter we still had uncertainty in Europe, a correcting stock market and a potential of a U.S. recession. Investors and corporate managements were in a derisking attitude, so not many potential investment-banking deals actually got closed.”

Photographer: Davis Turner/Bloomberg

Brian Moynihan, president and chief executive officer of Bank of America Corp. Close

Brian Moynihan, president and chief executive officer of Bank of America Corp.

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Photographer: Davis Turner/Bloomberg

Brian Moynihan, president and chief executive officer of Bank of America Corp.

Annual Profit Plunges

Montag, promoted to co-chief operating officer last year, had sought to rebound from the third-quarter loss, which was the first posted by the bank’s markets division since the takeover of Merrill Lynch & Co. in 2009. Improving on that performance “wouldn’t be a hard standard to overcome,” Moynihan said last year.

The division’s annual profit plunged to $2.97 billion from $6.3 billion in 2010. Bank of America, the second-biggest U.S. lender by assets, gave Montag $15.2 million in bonuses that year, a reward that exceeded Moynihan’s or that of Goldman Sachs CEO Lloyd Blankfein. The firm hasn’t yet disclosed the 2011 bonus for Montag, a former head of trading at Goldman Sachs.

Moynihan is conducting a company-wide review to cut costs called Project New BAC. After mapping out a plan for the retail unit and back-office operations -- which includes eliminating about $5 billion in annual costs and 30,000 jobs -- the CEO has turned his attention to Montag’s division, where more staff cuts are expected. The review will continue through March, the bank said last year.

Montag’s division had been credited by analysts for bolstering the bank’s profit as CEO Moynihan tries to contain costs from faulty mortgages. Bank of America has committed about $40 billion for refunds, lawsuits and foreclosures.

‘Results Were Weak’

“Trading was strong in the first part of the year, but with the issues in Europe, the U.S. downgrades, the downgrades of our company and changes in client risk appetite, results were weak in the second half, especially in the third quarter,” Moynihan said today on a call with analysts. “We need that business to come back or we’ve got to do more in expenses.”

The fourth-quarter results at the investment bank missed the estimates of some analysts, including the $291 million profit predicted by Moshe Orenbuch of Credit Suisse Group AG. David Trone, a New York-based analyst with JMP Securities LLC, had estimated a $579 million profit. Mosby had said the unit would lose about $300 million.

Trading Revenue Declines

Bank of America’s fourth-quarter trading revenue declined 44 percent from a year earlier to $1.38 billion, and tumbled 50 percent from the previous three-month period, including accounting adjustments. Citigroup’s trading revenue fell 9.8 percent from the prior year while JPMorgan’s dropped 18 percent.

Excluding the so-called debt-valuation adjustments, Bank of America’s trading revenue declined to $1.9 billion from $2.4 billion in the fourth quarter of 2010 and increased from $1.1 billion in the third quarter.

Revenue from fixed-income, currency and commodities trading fell 57 percent from the year-earlier period to $723 million and dropped 60 percent from the third quarter, including the adjustments. This reflected “ongoing concerns over the euro- zone sovereign-debt crisis, economic activity and political uncertainty,” the bank said.

Excluding the adjustments, fixed-income revenue tumbled 26 percent from the prior year to $1.2 billion, according to the bank. Stock-trading revenue fell 16 percent from the same quarter in 2010 when the same adjustments were excluded.

Investment-Banking Fees

Fees from investment banking, which includes advising clients on mergers and acquisitions as well as managing sales of shares and bonds, declined 35 percent from the prior year to $1.1 billion, the company said. The market was “challenging” because of the European crisis and the fallout from Standard & Poor’s downgrade of the U.S. credit rating, the bank said.

Bank of America remained the second-biggest underwriter of U.S. corporate bonds in the quarter as overall issuance fell 17 percent to $230.6 billion, according to data compiled by Bloomberg. JPMorgan held the top position and Citigroup came in third.

Bank of America slid two places to seventh among underwriters of global initial public offerings behind UBS AG (UBSN) and Deutsche Bank AG (DBK) as the amount of share offerings plunged to 230 from 398 a year earlier, the data show. Shares sold amounted to $25.4 billion, compared with $124.2 billion in the same quarter in 2010, according to the data.

‘All the Fun’

Former CEO Kenneth D. Lewis said in October 2007 he would cut 3,000 jobs and scale back investment-banking operations after the lender was hit with about $2 billion of write-downs and trading losses in the third quarter of 2007. Lewis wished to weed out units that post four or five annual profits and “give it all back” in one year, he told analysts.

“I’ve had all the fun I can stand in investment banking,” Lewis said. “So to get bigger is not something I really want to do.”

Under Lewis, Bank of America agreed to buy investment bank Merrill Lynch for about $50 billion in stock in 2009. Moynihan replaced Lewis on Jan. 1, 2010.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; ; Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Rick Green at rgreen18@bloomberg.net

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