Bank of America Corp. ranked among top gainers in the Dow Jones Industrial Average after second-quarter profit beat Wall Street estimates on the strength of cost-cutting and better credit.
Net income at the second-biggest U.S. lender climbed 63 percent to $4.01 billion, or 32 cents a share, from $2.46 billion, or 19 cents, a year earlier, the Charlotte, North Carolina-based firm said today in a statement. That exceeded almost every estimate from 28 analysts surveyed by Bloomberg, and the stock reached its best level in more than two years.
Chief Executive Officer Brian T. Moynihan has said he’ll eliminate $8 billion in annual costs by the end of 2014 and $10 billion tied to troubled mortgages a year later. Results this time were driven by a 6 percent drop in expenses while revenue climbed 3.5 percent.
“They’re finally executing on some of these strategies they’ve been laying out,” said Shannon Stemm, an analyst at Edward Jones & Co. with buy a rating on the lender. “And they did post some revenue growth year-over-year, which is nice to see, given it’s been a tough operating environment.”
Revenue rose to $22.73 billion from $21.97 billion a year earlier. Expenses fell to $16.02 billion from $17.05 billion as the staff shrank, litigation costs plunged by more than half and the division handling troubled mortgages provided less of a drag.
The provision for credit losses fell 32 percent from a year earlier to $1.21 billion. That figure was 31 percent below estimates, Richard Staite of Atlantic Equities LLP said in a research note. Net credit losses were below 1 percent for the first time since the middle of 2006, the bank said.
Income at the global banking unit, overseen by co-Chief Operating Officer Thomas K. Montag, slipped 2 percent to $1.29 billion on higher provisions fueled by commercial loan growth. Investment banking fees rose 36 percent to $1.6 billion.
Profit in the global markets division excluding adjustments climbed 57 percent to $935 million as improved equity results overwhelmed a drop in revenue from fixed income, currency and commodities sales and trading.
The FICC unit posted a $296 million revenue drop to $2.3 billion, excluding adjustments. Bank of America cited “a challenging trading environment toward the end of the quarter” tied to a Federal Reserve policy announcement. Equities sales and trading revenue before adjustments was $1.2 billion, a 53 percent increase.
The 12 percent drop in fixed-income trading fell short of the 5 percent increase expected by Deutsche Bank AG analyst Matt O’Connor and the 4 percent rise predicted by Wells Fargo & Co.’s Matt Burnell. Gerhard Seebacher and David Sobotka are co-heads of global FICC trading.
Consumer and business banking, part of retail operations overseen by co-COO David Darnell, posted a 15 percent rise in profit to $1.39 billion on lower expenses from bad credit. The loss at the firm’s real estate unit widened to $937 million from $744 million as revenue declined and the firm took fewer fees for servicing mortgages.
Wealth management’s profit jumped 38 percent to $758 million as revenue rose 9.9 percent to a record $4.5 billion, fueled by higher asset-management fees.
The company forecast today that costs in its legacy assets and servicing unit would be lower than $2 billion per quarter by the end of this year, better than the firm previously predicted, as the number of overdue borrowers tapers off.
The workforce was reduced 6.6 percent over 12 months to 257,158, led by cuts at legacy assets, where the total dropped by more than 10,000 to about 31,700.
Moynihan, 53, got Fed approval in March to repurchase as much as $5 billion in stock, a milestone in his three-year effort to clean up the firm’s balance sheet. The bank, which took a $45 billion bailout during the 2008 financial crisis, has sold $60 billion in assets and spent more than $45 billion to settle claims from faulty mortgages and foreclosures.
The lender had posted only four quarterly profit increases since Moynihan took over in 2010 through March 31, and he told investors in May the bank must produce consistent earnings before raising the quarterly dividend, which has languished at 1 cent since early 2009.
More pressure to build capital may be ahead as U.S. regulators push for bigger cushions against losses. Under the newest proposal, leverage ratios would be pegged at 5 percent for holding companies, 2 percentage points more than the international minimum, while some subsidiaries would have to hold 6 percent. The figure represents capital as a percentage of total assets.
Chief Financial Officer Bruce Thompson told reporters today that the leverage ratio is above 6 percent for banking units, and the company said the ratio of capital to total assets was between 4.9 percent and 5 percent for the parent company.
Bank of America, which became the biggest U.S. mortgage lender after its 2008 takeover of Countrywide Financial Corp., fell to No. 4 last year after Moynihan scaled back the business, missing a surge in refinancings and home purchases.
Now the company is seeking to regain its “fair share” of the mortgage market, Thompson said last month. Wells Fargo, the biggest U.S. home lender, and JPMorgan Chase & Co., the largest bank by assets, are predicting residential loans will slump for the rest of this year, and the drop in JPMorgan’s profit from the business could be “dramatic,” according to CEO Jamie Dimon.
Bank of America gained 2.8 percent to $14.31, the second-best showing in the Dow today behind DuPont Co., and sold for as much as $14.44, its best level in more than two years. After leading the Dow average in 2012, the stock trails its peers this year. The firm’s 20 percent advance through yesterday to $13.92 a share compares with 25 percent for the 24-company KBW Bank Index.
Bank of America is the last of the four biggest U.S. lenders to report results. New York-based JPMorgan said earnings rose 31 percent on trading revenue and San Francisco-based Wells Fargo posted a 19 percent gain by clamping down on costs, with both firms setting quarterly records. New York-based Citigroup Inc.’s profit jumped 42 percent as trading improved and losses on unwanted assets waned.