Bank of America Says Net Income Rebounds as Expenses Ease

Oct. 16 (Bloomberg) -- Bloomberg senior market correspondent Scarlet Fu digs deeper into third-quarter results from Bank of America as profit increased due to lower expenses and legal fees as more customers repaid loans on time. She speaks on Bloomberg Television’s “In The Loop.”

Bank of America Corp. advanced in New York trading as the second-largest U.S. lender said lower legal expenses and loan losses helped profit rebound.

Net income in the third quarter rose to $2.5 billion, or 20 cents a diluted share, from $340 million a year earlier, when per-share results were break-even, the Charlotte, North Carolina-based bank said today in a statement. The average estimate of 24 analysts surveyed by Bloomberg was 21 cents.

Chief Executive Officer Brian T. Moynihan, 54, has said the “lion’s share” of costs tied to disputed mortgages are behind his bank after booking more than $45 billion tied to his predecessor’s 2008 takeover of Countrywide Financial Corp. The bank will trim $8 billion in annual operating costs by the end of 2014 and $10 billion from troubled loans a year later, Moynihan has said.

“They’ve done a fairly good job of convincing the market that those cost savings are going to occur,” said Jonathan Finger, whose family-owned investment company, Finger Interests Ltd., owns 900,000 Bank of America shares. “Their results have gotten cleaner, though a lot of folks still expect some charges going forward.”

Bank of America shares rose 2.3 percent to $14.56 at 4 p.m. in New York. That boosted the gain for this year to more than 25 percent, trailing the 24-company KBW Bank Index by less than a percentage point.

Photographer: Ron Antonelli/Bloomberg

Bank of America Corp. signage is displayed at a branch in New York. Close

Bank of America Corp. signage is displayed at a branch in New York.

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Photographer: Ron Antonelli/Bloomberg

Bank of America Corp. signage is displayed at a branch in New York.

Total expenses during the quarter slid 6.6 percent from a year earlier to $16.4 billion because of lower costs in the division servicing troubled loans, staff reductions and litigation costs that fell by 31 percent to $1.1 billion.

Capital Ratios

Capital levels improved, with the bank saying it expects to exceed new U.S. regulatory minimums -- known as the supplementary leverage ratio -- for the parent company and its two primary banking units.

Revenue rose 5.4 percent to $21.5 billion. Excluding certain accounting adjustments, revenue slid to $22.2 billion from $22.5 billion.

“We saw good loan growth, improved credit quality and record deposit balances,” Moynihan said in the statement.

Income at the global banking unit, overseen by co-Chief Operating Officer Thomas K. Montag, slipped 1.5 percent to $1.13 billion on higher provisions for credit losses.

Global markets, the bank’s trading operations, posted a 39 percent drop in profit to $531 million excluding adjustments tied to credit and tax rate changes. Revenue in the division fell 5 percent to $3.7 billion on lower results across fixed-income units.

Photographer: Pete Marovich/Bloomberg

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the “lion’s share” of mortgage costs are behind his bank after booking more than $45 billion tied to his predecessor’s 2008 takeover of Countrywide Financial Corp. Close

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the “lion’s... Read More

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Photographer: Pete Marovich/Bloomberg

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the “lion’s share” of mortgage costs are behind his bank after booking more than $45 billion tied to his predecessor’s 2008 takeover of Countrywide Financial Corp.

Fixed Income

Revenue in the firm’s fixed-income, currency and commodities sales and trading division fell 20 percent to $2 billion because of “lower market volumes arising from concerns around monetary policy as well as political uncertainty domestically and abroad,” the lender said. David Sobotka became sole head of the unit last month after former co-head Gerhard Seebacher retired, according to a memo from Montag.

The lender’s results compare with $2.78 billion in third-quarter fixed-income revenue at Citigroup Inc. and $3.44 billion at JPMorgan Chase & Co. (JPM)

Bank of America said equities sales and trading revenue rose 36 percent to $970 million on increased market volumes.

Consumer and business banking, part of retail operations overseen by co-COO David Darnell, reported that profit jumped 32 percent to $1.8 billion as revenue, deposits, consumer credit-card spending and small-business loans increased, the company said. The net loss from consumer real estate, which includes home lending, widened to $1 billion from $857 million as production fell.

Profit at the wealth-management division, which includes the Merrill Lynch brokerage, jumped 26 percent to $719 million, fueled by higher asset-management fees.

China Construction

The bank told investors last month the quarter’s results would be helped by the sale of about 2 billion shares in China Construction Bank Corp., ending an eight-year investment in the Beijing-based lender.

Moynihan’s performance won praise from Warren Buffett, the chairman of Berkshire Hathaway Inc., who cited the decline in bad loans. Buffett invested $5 billion in the bank in 2011.

“I don’t think anybody expected charge-offs a few years ago to be as low as they are now,” Buffett, 83, said today on CNBC. “So Brian’s done a great job.”

Moynihan, a lawyer who served as general counsel, may have to deal with another round of legal woes tied to mortgages. Bank of America was sued by the U.S. for allegedly hiding risk from investors in an $850 million securitization in 2008, according to a complaint filed in August. Regulators are also scrutinizing Merrill Lynch sales of collateralized debt obligations, the lender said.

Job Cuts

More than 9,200 jobs were cut by Bank of America during the third quarter, or about 3.6 percent of the workforce, bringing full-time staff to 247,943, according to the bank’s report today. Chief Financial Officer Bruce Thompson cited reductions in home lending and branches during the conference call.

Banks are cutting mortgage staff as higher interest rates discourage refinancing. Bank of America eliminated 2,100 jobs and closed 16 mortgage offices, two people with knowledge of the plans said last month, following reductions announced by bigger mortgage rivals Wells Fargo & Co. (WFC) and JPMorgan.

Bank of America’s home-equity unit “will never be a huge business to this company because it’s a business which is very competitive,” Moynihan told analysts during a conference call.

Peer Performance

JPMorgan, the biggest U.S. lender by assets, posted a third-quarter loss of $380 million after taking a $7.2 billion charge to cover the cost of litigation and regulatory probes of the New York-based bank.

Wells Fargo, the biggest mortgage lender, said profit rose 13 percent to a record $5.58 billion as the San Francisco-based firm released reserves for credit losses. Citigroup (C) profit, which rose to $3.23 billion from $468 million, missed some analysts’ estimates as bond trading and mortgage lending slumped at the New York-based bank, ranked third by assets.

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

To contact the editors responsible for this story: Christine Harper at charper@bloomberg.net; David Scheer at dscheer@bloomberg.net

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