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BofA profit beats as mortgage losses ease, provisions fall

Wednesday, 15 Jan 2014 | 8:54 AM ET
BofA Q4 beats on top & bottom line; profits soar
Wednesday, 15 Jan 2014 | 7:23 AM ET
David Hilder, Drexel Hamilton analyst, breaks down the big bank's fourth quarter earnings. The investment bank and capital markets business is performing very well, says Hamilton.

Bank of America, the No.2 U.S. bank, reported a stronger-than-expected quarterly profit, driven by a steep fall in mortgage losses and provisions to cover bad loans.

Fourth-quarter net income applicable to shareholders rose to $3.18 billion, or 29 cents per share, from $367 million, or 3 cents per share, in the same quarter of 2012 when profit was dented by about $5 billion of mortgage-related charges.

Analysts had expected earnings of 26 cents per share, according to Thomson Reuters I/B/E/S.

Bank of America joins JPMorgan Chase and Wells Fargo in reporting better-than-expected quarterly earnings.

(Read more: JPMorgan earnings hit by legal expenses)

The reflections of pedestrians walking are seen in the window of a Bank of America branch in New York.
Ron Antonelli | Bloomberg | Getty Images
The reflections of pedestrians walking are seen in the window of a Bank of America branch in New York.

"Capital and liquidity are at record levels, credit losses are at historic lows, our cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum," Chief Financial Officer Bruce Thompson said.

Provisions for credit losses fell to $336 million from $2.2 billion in the fourth quarter of 2012.

The bank's consumer mortgage business lost $1.1 billion, compared with a loss of $3.7 billion a year earlier.

The mortgage losses stem are mainly a legacy of the housing crisis and the bank's disastrous 2008 purchase of Countrywide Financial.

Bank of America's shares, which rose 34.6 percent in 2013, were up 2.3 percent at $17.16 before the bell on Wednesday.

Revenue excluding accounting adjustments rose 14 percent to $22.3 billion, while operating costs fell 6 percent to $17.3 billion.

Chief Executive Brian Moynihan has focused on cutting costs since he took the top job at the bank in 2010 and announced plans in 2011 to save the bank $8 billion per year.

(Read more: Wells Fargo profit rises as costs fall)

Bank of America released $1.2 billion from its reserves to cover bad loans, compared with $900 million in the same period a year earlier and $1.4 billion in the third quarter.

The bank's net charge-off ratio fell to 0.68 percent from 1.40 percent in the fourth quarter of 2012 and 0.73 percent in the third quarter.

Firmwide investment banking fees increased 9 percent to $1.7 billion as companies around the world took advantage of record high stock prices to raise equity capital.

Total issues rose 50 percent in quarter from the same period a year earlier, making it the strongest quarter for equity capital raising since the fourth quarter of 2010, according to Thomson Reuters data.

Equity trading revenue rose 27 percent to $904 million from a year earlier.

Bond trading revenue rose 16 percent to $2.1 billion as stronger results in credit and mortgage products more than offset weakness in rates and commodities, Bank of America said.

Wealth business thrives

Bank of America's global wealth and investment management business reported record net income and asset management fees.

Net income rose 35 percent to $777 million, while revenue increased 7 percent to $4.5 billion, driven by higher noninterest income related to long-term flows of assets under management and strong markets.

However, the end of the mortgage refinancing boom hit Bank of America's consumer real estate services business.

(Read more: Dick Bove's warning on JPMorgan Chase)

The Charlotte, N.C., bank made $13.5 billion in home loans, down from the $22.6 billion in the third quarter and $21.5 billion in the year-earlier quarter. Core production revenue more than halved to $403 million.

Bank of America's net interest margin, a measure of the profitability of its loans, rose to 2.46 percent, up from 2.35 a year earlier and 2.44 in the third quarter.

Litigation expenses rose to $2.3 billion from $1.1 billion in the third quarter and $2.0 billion a year earlier.

The bank has already agreed to pay in excess of $45 billion to settle disputes stemming from the 2008 financial crisis.

After the earnings announcement, the company's shares rose in premarket trading. (Click here to track the company's stock following the report.)

By Reuters

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