Bank of America’s fourth quarter profits rose 47% while Wachovia’s earnings rose 35%, as recently-acquired businesses and a growth in fees helped boost results at both Charlotte-based banks.
At Bank of America, the nation’s second-largest bank, the addition of credit-card issuer MBNA and gains in investment banking buoyed profits. However, results disappointed some investors, as expenses rose from the third quarter while revenue fell, and equity investment gains that might not be repeated more than doubled.
Meanwhile, like many of its banking rivals, Bank of America expects to face a deterioration in credit quality. It also continues to confront a challenging interest rate environment, which makes it hard to generate profits on the amount between what banks charge on loans and what they pay on deposits.
Indeed, Bank of America said investors could expect less robust growth in 2007 as interest-rate pressures persist and loan losses rise by 20%.
Fourth quarter net income climbed to $5.26 billion, or $1.16 per share, from $3.57 billion, or 88 cents per share, a year ago. Results for the fourth quarter of 2005 do not include MBNA, which was acquired on Jan. 1, 2006.
Excluding merger and restructuring charges, the company earned $5.01 billion, or $1.19 per share, in the latest quarter. That was a penny better than forecasts, according to a consensus estimate compiled Thomson Financial.
Revenue grew 34% to $18.46 billion from $13.81 billion last year, exceeding the $18.01 billion analysts were expecting.
Net interest income, or the difference between interest collected on loans and fees paid out on deposits, grew to $8.96 billion from $8.10 billion last year. Noninterest income rose 66% to $9.87 billion from $5.95 billion.
At Wachovia, the nation’s fourth-largest bank, the acquisition of Golden West Financial and growth in fees boosted results.
Net income rose to $2.3 billion, or $1.20 per share, from $1.71 billion, or $1.09, a year earlier.
Excluding merger costs, profit totaled $2.33 billion, or $1.21 per share, topping the average analyst forecast by 3 cents, according to Reuters Estimates.
"Wachovia generated one of the strongest fourth quarters of the banks reporting so far given sizable strength in market-sensitive businesses, net interest margin improvement, and stable to improved credit trends," wrote Goldman Sachs analyst Lori Appelbaum, who rates the bank "buy."
Revenue rose 31% to $8.59 billion, topping the average $7.91 billion forecast. Non-interest expense rose 18% to $4.93 billion. Loan losses more than doubled.
"We think we've got really good momentum in all four business lines," Chief Executive Ken Thompson said on a conference call. "Although credit costs are rising, this largely reflects (loan) growth, including our re-entry into the credit card business."
Results were the first to include Golden West, an adjustable-rate mortgage lender and 285-branch thrift that Wachovia acquired on Oct. 1 for $24.2 billion, amid criticism that it overpaid just as the U.S housing market was cresting.
National City, PNC
Meanwhile, at National City, the nation's ninth-largest bank, fourth quarter profit more than doubled because of the sale of its subprime lending unit, yet results fell short of analysts' forecasts because of credit losses.
Net income for the Cleveland-based company rose to $842 million, or $1.36 per share, from $398 million, or 64 cents a share, a year earlier.
Results included a gain of $622 million, or $1 per share, from the sale of First Franklin Financial to Merrill Lynch, and charges of $172 million, or 28 cents per share, for credit losses related to First Franklin.
Excluding items, profit totaled 64 cents per share, five cents below the average analyst forecast according to Reuters Estimates.
PNC Financial Services’ fourth-quarter profit was helped by higher revenue from its brokerage and asset management units.
Net income for the Pittsburgh-based company rose to $376 million, or $1.27 per share, from $355 million, or $1.20 per share, a year earlier.
Excluding $47 million in costs from the purchase of Merrill Lynch's asset management unit by PNC's money management unit BlackRock, earnings were $1.30 a share.
Analysts had forecast profit of $1.30 per share before exceptional items, according to Reuters Estimates.