By Saabira Chaudhuri
Bank of America Corp. eked out a small profit for the third
quarter as the company reported stronger than expected trading
revenue and showed progress in controlling expenses even as results
were weighed down by large legal charges.
On a per-share basis, which includes the payment of preferred
dividends, the bank reported a loss of a penny, easily topping the
nine cents a share loss share expected by analysts polled by
Thomson Reuters.
Bank of America reported a profit of $168 million, compared with
a profit of $2.5 billion a year earlier. The results include a
litigation charge of $5.6 billion, about five times the
year-earlier charge of $1.1 billion. Revenue fell 1.5% to $21.21
billion, missing analysts' expectation of $21.36 billion.
Shares reversed early gains in premarket trading to fall 1.8% in
early trading Wednesday amid a broader stock-market decline.
The bank's bottom-line performance was driven mainly by a better
tax rate, said Citigroup Inc. analyst Keith Horowitz, although he
added that "core results were also better than expected."
The revenue decline came as Bank of America showed weakness in
lending this quarter. Total loans and leases ticked down 4.6% from
a year earlier to $891.32 billion. The bank's net interest
margin--a key measure of lending profitability--narrowed to 2.29%
from 2.33% in the year-ago quarter, although it widened slightly
from the 2.22% logged in the second quarter.
Litigation expenses have been a key story line at the Charlotte,
N.C., lender for a string of quarters. Bank of America for months
set aside money for a deal with the Justice Department, which
eventually culminated in August when the bank agreed to pay $16.65
billion to settle the government's accusations it sold flawed
mortgage securities in the run up to the 2008 crisis.
The largest settlement ever reached between the U.S. and a
single company, the pact is expected to be the last of the lender's
big crisis-era problems, bank executives have said. But on a call
with journalists, Chief Financial Officer Bruce Thompson hinted at
more mortgage litigation to come, noting that the bank took a $500
million litigation accrual in the third quarter for legacy mortgage
related matters.
Bank of America's trading gains surprised on Wednesday, coming
in higher than peers have reported so far for the third quarter.
Trading revenue, excluding adjustments to the value of the bank's
debt, rose 9.2% from a year earlier to $3.27 billion. Fixed income,
currencies and commodities trading revenue on this basis was up 11%
to $2.25 billion, driven by what the bank said were strong results
in currencies due to increased volatility in the period as well as
gains in mortgages and commodities.
Equities revenue was up 5.9% to $1.03 billion, driven by a
pickup in client financing. On a call with journalists Chief
Financial Officer Bruce Thompson notes that the gains come off "a
very low base" as banks' trading divisions suffered last year.
The results come after rivals Citigroup Inc. and J.P. Morgan
Chase & Co. reported adjusted FICC revenue that climbed 6.7%
and 1.2% respectively from the year earlier.
In the third quarter, Bank of America continued to feel the
impact of a fizzling in the refinancing boom. The bank's consumer
real estate division--which includes mortgage banking--reported a
loss of $5.18 billion, weighed down by the large litigation charges
in the quarter. The unit lost $990 million a year ago, and $2.8
billion in the second quarter.
Meanwhile, mortgage originations in the division declined from a
year earlier, helping revenue drop by $484 million to $1.1
billion.
Bank of America's noninterest expense was up at $19.74 billion
compared with $16.39 billion a year earlier and $18.54 billion in
the prior quarter. But the bank noted that expenses dropped 7% from
a year earlier after stripping out the legal charges, driven by
broad-based declines across the company.
Banks have been cutting staff in an attempt to keep costs under
control in a still uncertain revenue environment. Bank of America
ended the third quarter with 229,538 full-time employees, down 7%
from the year-ago quarter and 2% below the prior quarter.
In the quarter, Bank of America lost the previous tailwind it
saw from lower provisions for bad loans. The bank's credit-loss
provisions were up at $636 million, compared with $296 million a
year earlier and $411 million in the second quarter.
The bank reported firmwide investment banking fees increased 4%
from the year-earlier to $1.4 billion. That helped its global
banking arm log a profit of $1.41 billion, up 24% from a year
earlier and 4.6% from the second quarter.
Bank of America's core consumer and business banking arm--which
consist of its bread-and-butter branch banking and makes loans to
small businesses--reported a profit of $1.86 billion, compared with
a year-earlier profit of $1.79 billion.
Brian Moynihan, chief executive and recent chairman of the
second-largest U.S. bank by assets, has been working to shrink the
bank and make it simpler, a departure from the empire-building days
of his predecessors. Wading through a mountain of litigation that
the bank accumulated from the financial crisis, much of it related
to Countrywide, also has been a main focus. Now that Bank of
America has struck its settlement with the Justice Department and
won regulatory approval to raise its dividend, investor focus is
expected to shift more toward longer-term profitability.
-- Christina Rexrode contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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