Bank of America Profit Drops 95%, Settlement Charges To Blame

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Bank of America Corp (NYSE:BAC) reported Wednesday net earnings of $340 million, or nil per share, compared with $6.2 billion, or 56 cents a share, in the same period a year earlier. The third quarter profits were mainly dented by legal settlements related to the acquisition of Merrill Lynch and other previously disclosed charges, as opposed to last year, when the sale of assets and accounting benefits boosted earnings. Analysts’ average earnings estimate was a loss of 7 cents per share, according to Thomson Reuters I/B/E/S.

The second-biggest U.S. bank, last month agreed to pay $2.4 billion to settle claims that it hid crucial information from shareholders when it bought investment bank Merrill Lynch & Co, at the height of the financial crisis; however, the bank has denied the allegations.

Bank of America Profit Drops 95%, Settlement Charges To Blame

Bank of America Corp (NYSE:BAC) IB fees looked better, rising 16 percent; largely on higher debt underwriting fees, while equity fees rose 45 percent on a quarterly basis, but advisory fees dropped 45 percent from last quarter. Bank’s NIM of 2.85 percent rose 9 bps on a quarterly basis, with asset yields of 3.22 percent, up 1 bps from the second quarter. Outstanding counterparty claims rose 12 percent to $25.5 Billion and Bank of America Corp (NYSE:BAC) increased its estimate of future possible loss above current reserves to $6 Billion from $5 Billion.

 Bank of America did say earlier that its profits may take a hit by 28 cents per share, due to a UK tax charge and an accounting charge related to the value of its debt. The bank has been following a cost-cutting program, which aims to eliminate $8 billion in annual expenses and 30,000 jobs, to boost profits. But, the results point out that the company still has to work a lot to overcome the forged acquisitions during the financial crisis. Bank of America, which rescued Countrywide Financial Corp. in 2008, had $118 billion in home-equity loans at June 30, with 1.1% at least 30 days overdue.

“There are several things floating to the top that reflect a continual clean-up at Bank of America Corp (NYSE:BAC),” said Marty Mosby, an analyst at Guggenheim Securities LLC, which manages more than $100 billion including Bank of America stock. “The Merrill settlement was yet another uncertainty that goes away, and at the same time the housing market is getting better, which helps because the lion’s share of their issues are from real estate”.

The bank’s trading performance fell slightly below peers, but Net Interest Margin (NIM) and capital were positives and credit continues to slowly mend. A report from Wells Fargo & Company (NYSE:WFC) “believes Bank of America Corp (NYSE:BAC) performs in line with peers today on these results”.



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