07/17/2009: BAC ER Profit slip 5.5%

07/17/2009: BAC ER Profit slip 5.5%

NEW YORK (MarketWatch) -- Bank of America Corp. said Friday that its profit slipped 5.5% in the second quarter as credit-loss provisions continued to overwhelm record trading profits and a multi-billion-dollar gain from the sale of China Construction Bank shares.

"Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010," Chief Executive Ken Lewis said in a Friday press release.

Bank of America /quotes/comstock/13*!bac/quotes/nls/bac (BAC 12.79, -0.38, -2.89%) said that it earned $3.2 billion, or 33 cents a share in the second quarter, compared to $3.4 billion, or 72 cents a share a year ago.

The results for the latest quarter included several one-time items, including a payment of $713 million in preferred dividends to the U.S. government.

Revenue net of interest expense on a fully taxable-equivalent basis rose 60% to $33.1 billion compared with $20.7 billion a year ago, the company said, aided by the acquisitions of Merrill Lynch and Countrywide Financial over the last year.

Analysts polled by Thomson Reuters had expected the company to earn 28 cents a share in the quarter.

The company posted credit-loss provisions of a $13.38 billion in the quarter, the same as in the first quarter, but about double year-ago levels.

Those provisions offset a roughly $5 billion gain on the company's previously announced sale of China Construction Bank shares, as well as profits generated from a record $6.7 billion at its sales and trading operations.

Bank of America continues to own approximately 11% of China Construction Bank's common shares.

The bank also took $3.6 billion in losses related to mark-to-market adjustments, including for debt securities of Merrill Lynch.

The firm said that its integration of Merrill Lynch, the iconic brokerage firm that it bought at the height of last the credit crisis, is on track and meeting goals.

"The Merrill Lynch integration is on track and meeting expected goals," The firm said in a press release.

"The company in 2009 expects to achieve in excess of 40% of the previously announced goal of approximately $7 billion in cost savings, ahead of the original goal of 25% for the year." Bank of America, which also acquired mortgage lender Countrywide Financial last year, said that integration "and related cost savings are on track."

Average retail deposits in the second quarter rose $136.3 billion, or 26% from a year earlier, including $104.3 billion in balances from Merrill Lynch and Countrywide. Excluding Countrywide and Merrill Lynch, the bank said it grew retail deposits $32.0 billion, or 6%, from the year-ago quarter.

The company also said it took a charge in the quarter for a special FDIC assessment.

Consumer credit hit

Credit card income declined due to higher credit losses on securitized credit-card loans and lower fee income, the bank said.

Credit card managed losses increased to 11.7% from 5.96% last year, while total nonperforming assets rose to 3.31% from 1.13% in 2008's second quarter.

Bank of America has a larger exposure to consumer credit than many of the nation's largest banks, and the recession has so far hit consumers harder than commercial clients as home prices fall and unemployment spikes.

"Credit quality deteriorated further as the economic environment weakened. Consumers remained under significant stress as unemployment and underemployment increased and individuals spent longer periods without work. These conditions led to higher losses in almost all consumer portfolios compared with the prior quarter," the company said.

However, Bank of America and others still face what most believe is a worsening commercial loan and real-estate market just as consumers have shown some signs of stabilizing.

Hectic quarter

Bank of America had one of the most hectic quarters of any company.

In May, in the middle of the quarter, lead director O. Temple Sloan resigned in the face of shareholder grumbling and regulatory pressure. He had served on the board for 13 years.

Bank of America has been forced to take more than $40 billion in government support as the mortgage meltdown and the ensuing credit crisis have pummeled the company.

In the wake of stress tests of the largest U.S. lenders earlier this month, the Obama administration ordered Bank of America to raise more than $30 billion in new equity capital. The company is on its way to completing the task, but some shareholders have been upset with the resulting dilution of their stakes.

Chief Executive Officer Ken Lewis has come under particular fire for Bank of America's acquisition of Merrill Lynch.

And, The Wall Street Journal reported Thursday that the bank is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management.

Bank of America posts 2Q profit, surpasses Street

CHARLOTTE, N.C. (AP) -- Bank of America joined the nation's other big banks in reporting better than expected earnings, posting a $2.42 billion second-quarter profit even as losses from failed loans continued to rise.

Bank of America said Friday its earnings after payment of preferred dividends were down at 33 cents per share compared with a profit of $3.22 billion, or 72 cents per share, a year earlier. The earnings beat the forecasts of analysts surveyed by Thomson Reuters, who forecast Bank of America would earn 28 cents per share.

Revenue rose to $32.77 billion, slightly below analysts' forecast of $33.1 billion.

Also Friday, Citigroup Inc. said it earned $3 billion after paying preferred dividends, or 49 cents per share. Analysts had predicted the New York-based bank would post a quarterly loss.

In a statement, Bank of America CEO Ken Lewis warned that "continued weakness in the global economy, rising unemployment and deteriorating credit quality" would affect the company for the rest of this year and next. That echoed the view taken Thursday by JPMorgan Chase & Co. executives who also reported continuing loan problems even as their company had strong second-quarter earnings.

Despite its better-than-expected results, Bank of America's shares fell nearly 3 percent in premarket trading Friday. The overall stock market appeared headed for a pullback after a huge rally this week.

Bank of America said its results also reflected a $5.3 billion pretax gain from selling part of its stake in China Construction Bank Corp. They also included $713 million of dividend payments tied to a federal bailout, and a charge to bolster a federal deposit insurance fund.

Charlotte, N.C.-based Bank of America, like Goldman Sachs Group Inc. and JPMorgan Chase, said it had a handsome profit from its trading business. The company acquired Merrill Lynch & Co. early this year.

In the company's global markets unit, profits increased by $1.1 billion to $1.38 billion, as revenue totaled $4.45 billion. Its global wealth and investment management division saw net income fall 24 percent to $441 million, as revenue increased to $4.2 billion.

But, like JPMorgan, it did report continuing losses from failed loans. Bank of America said it recorded a $13.4 billion provision for loan losses during the second quarter as consumers struggled with debt amid rising unemployment.

Troubled loans, or nonperforming assets, increased to $31 billion from $9.75 billion a year ago. The bank also lost $1.6 billion on card services, after posting a profit a year ago.

The company also said its mortgage revenue rose following its acquisition of lender Countrywide Financial Corp., reflecting the refinancing boom triggered by lower mortgage rates.

During the quarter, the government told Bank of America it needed to raise $33.9 billion in additional capital to strengthen its finances in the event of a further deterioration in the economy. By late June, the bank had raised $38 billion.

On Friday, the bank said its Tier 1 capital ratio, a key measure of financial strength, jumped to 11.93 from 8.25 percent a year ago.

The bank has received $45 billion in bailout funds as part of the Treasury Departments $700 billion financial rescue package. It's not known when it will repay the government.