Bank of America Beats Analyst Estimates as Trading Jumps

April 19 (Bloomberg) -- Bloomberg's Erik Schatzker, Stephanie Ruhle and Scarlet Fu report that Bank of America Corp., the second-largest U.S. lender, said first-quarter profit rose amid a rebound in trading and lower provisions for bad loans. Bank of America earned $0.31 per share, beating the estimate of $0.12 per share. They speak on Bloomberg Television's "Inside Track." (Source: Bloomberg)

Bank of America Corp., the second- largest U.S. lender, posted a first-quarter profit that was more than most analysts predicted amid a rebound in trading and better credit quality.

Profit excluding certain one-time items increased about 40 percent to $3.7 billion, or 31 cents a diluted share, from $2.6 billion, or 23 cents, a year earlier, based on data released in a statement today. That beat the average per-share estimate of 27 analysts surveyed by Bloomberg of 12 cents. Net income, which includes accounting charges, fell to $653 million, or 3 cents a share, from $2.05 billion, or 17 cents.

Chief Executive Officer Brian T. Moynihan has said he’s counting on trading units run by Thomas K. Montag to revive income and had warned he would cut costs more deeply if results didn’t improve. The business responded with its first profit in three quarters and positive trading revenue every day amid the best start for the Standard & Poor’s 500 Index in 14 years and a lull in Europe’s debt crisis.

“You had very favorable tailwinds in the fixed-income markets and so trading revenues are very strong for this universe right now,” Charles Peabody, an analyst at Portales Partners LLC in New York, said in a Bloomberg Radio interview. “There’s no question the earnings that are being reported are very good -- the question is the sustainability.”

Bank of America, based in Charlotte, North Carolina, slipped 15 cents, or 1.7 percent, at 4:15 p.m. in New York after gaining as much as 2.8 percent earlier during the session.

Trading Results

Global markets, the bank’s trading operations, posted a $798 million profit, compared to a $768 million loss in the fourth quarter and a $1.39 billion profit a year earlier. The division’s latest results include a $1.4 billion charge related to its debt, more than three times bigger than a similar accounting charge a year earlier.

Sales and trading revenue excluding accounting adjustments more than doubled to $5.2 billion in the first quarter from $2 billion in the fourth quarter, and advanced from $5 billion a year earlier, the bank said. The tally for the most recent three months was the third-highest since the takeover of Merrill Lynch in 2009, according to the company.

Fixed Income

Revenue from fixed income, currency and commodities excluding adjustments rose to $4.1 billion in the first quarter from $1.3 billion in the fourth quarter and $3.7 billion a year earlier, according to the statement.

“We saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year,” Moynihan said in the statement.

The $2.42 billion provision for credit losses was the smallest since the third quarter of 2007, according to the bank. The real estate unit’s loss narrowed to $1.15 billion from $2.4 billion a year earlier as the firm set aside less for mortgage repurchases.

The provision for loan repurchase demands dropped to $282 million from $1 billion, with revenue increasing to $2.7 billion from $2.1 billion a year earlier. The bank reclassified $1.85 billion of home equity loans as non-performers, responding to new regulatory guidance on how to treat junior liens when first mortgages are overdue. The bank said the sum was already covered by reserves.

Companywide revenue narrowed 17 percent to $22.3 billion from $26.9 billion, the bank said. Total loans and leases slipped to $913.7 billion from $932.9 billion in the fourth quarter.

Behind the Numbers

Fair value and debt valuation adjustments totaled about $4.8 billion before taxes, according to the bank. Comparisons with last year were also skewed by one-time pretax gains of $1.2 billion on buying back debt and trust preferred securities and $800 million each from equity investment income and sales of debt securities. Pretax litigation expenses subtracted $800 million and one-time retirement-related costs were about $900 million.

The adjusted profit excludes the $4.8 billion negative valuation adjustments in the first quarter and a charge of $943 million a year earlier, and is based on a 37 percent tax rate provided by the lender. With one-time items removed, earnings per share may have been closer to 17 cents a share, Paul Miller, an analyst at FBR Capital Markets, said during an interview on Bloomberg Television with Erik Schatzker.

“So, still a good number, but nowhere near as good as that 31 cents, and that’s what people are going to start to focus on,” Miller said.

Moynihan, 52, had told investors to expect the second phase of his efficiency plan, dubbed Project New BAC, to be in place this month. The firm most recently was scrutinizing investment banking, trading and wealth management. The first part, which examined retail banking, targeted 30,000 job reductions.

New Structure

Bank of America reorganized its reporting lines this month, combining deposit, credit-card and small business units into a new consumer-and-business banking division led by co-Chief Operating Officer David Darnell, 59. He also oversees real estate and wealth-management units.

Operations run by Montag, 55, the former Goldman Sachs Group Inc. trading head promoted to co-chief operating officer in September, were split into global markets and banking units. The banking unit incorporates parts of a former stand-alone business that catered to larger corporations with more than $50 million in annual revenue.

The lender has surged 58 percent this year in New York trading through yesterday, the best in the Dow Jones Industrial Average, as capital improved and the firm passed the Federal Reserve’s stress test. Moynihan sold more than $50 billion in assets to boost capital and simplify the firm since taking over in 2010.

Divestments Ahead

Moynihan has said that he will focus on selling home loans to customers of the firm’s domestic retail bank and wealth- management division. At the same time, he’s seeking to divest wealth-management units outside the U.S., a person with direct knowledge of the process said this week. The businesses operate in Europe, Asia, the Middle East and Latin America.

JPMorgan Chase & Co. (JPM) and Wells Fargo & Co., (WFC) the No. 1 and No. 4 biggest banks by assets, reported first-quarter earnings last week that exceeded analysts’ estimates on a rise in mortgage fees. The firms may have benefited as Bank of America retreated from selling mortgages after its 2008 takeover of Countrywide Financial Corp. saddled it with more than $40 billion in costs.

The lender saw its share of originations drop to 5.6 percent in the fourth quarter from 10 percent in 2011’s third quarter and 24.7 percent in 2007, according to a February note from FBR Capital Markets.

To contact the reporter on this story: Hugh Son in New York at hson1@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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