Bank of America Earnings Hurt by Tax-Related Charge -- 3rd Update
January 17 2018 - 8:42AM
Dow Jones News
By Rachel Louise Ensign
Bank of America Corp. said Wednesday that its fourth-quarter
profit fell from a year ago, hurt by a $2.9 billion charge related
to the tax bill, even as the bank ended a year that put its
crisis-era issues firmly in the past.
The Charlotte, N.C.-based bank reported a profit of $2.37
billion, or 20 cents a share. Without the tax charge, the bank's
profit was $5.3 billion, or 47 cents a share.
Analysts polled by Thomson Reuters had expected earnings of 44
cents a share, on an adjusted basis.
Bank of America shares rose 14 cents to $31.38 in premarket
trading.
Investors are expected to look past the one-time charges because
they are likely to be outweighed by the new tax law's longer-term
benefits. Starting this year, a lower corporate tax rate is
expected to boost Bank of America's profit by 16%, according to
Bernstein analysts.
Excluding the tax charges, the bank posted a $21.1 billion
profit for 2017, matching the bank's 2006 all-time profit
record.
Total revenue was $20.4 billion for the fourth quarter, but
$21.4 billion if excluding the tax-bill related items. That
compares to $19.99 billion a year earlier.
While the new tax law hurt Bank of America's results in the
fourth quarter, Chief Financial Officer Paul Donofrio said the
changes will soon turn to a net positive for the bank. In addition
to a lower tax rate that will lead to "significant savings," Mr.
Donofrio says the new law "will level the playing field" for the
U.S. against other countries.
"We benefit when U.S. consumers and corporations can grow and
when there is more economic activity in the U.S.," he said.
As recently as 2014, Bank of America's results were dogged by
tens of billions of dollars in penalties over financial-crisis era
issues. Since then, the company's legal problems have eased, as
Chairman and Chief Executive Brian Moynihan has made a concerted
effort to cut costs and focus on safer businesses such as lending
to consumers with good credit.
The bank also has had the help of rising interest rates, which
are boosting profits. The bank's net-interest income rose to
$11.462 billion from the prior quarter.
It paid slightly higher rates to depositors in the quarter. The
rate the bank paid on U.S. interest-bearing deposits was 0.27%,
compared with 0.24% in the prior quarter.
Trading revenue was a weak spot. Excluding an accounting
adjustment, it fell about 9% to $2.66 billion from $2.91 billion in
last year's fourth quarter.
Another issue was a $292 million charge-off related to "a
single-name non-U.S. commercial" client in the fourth quarter. A
person familiar with the matter said this was the bank's lending
activity involving troubled firm Steinhoff International Holdings
NV. JPMorgan Chase & Co. and Citigroup Inc. both took similar
charges for loans involving the retailer, which is battling a
burgeoning financial crisis after disclosing possible accounting
irregularities
Bank of America's quarterly return on equity was 7.8%, down
slightly from 8.1% the prior quarter and below the bank's 10%
theoretical cost of capital.
However, the bank came relatively close to meeting performance
goals it set for itself in the fourth quarter, including a 1%
return on average assets and a 12% return on average tangible
common equity. Excluding the effect of the tax bill, those metrics
stood at 0.9% and 10.9%.
Loan growth, which has slowed down across the banking industry,
grew 2% from a year earlier. The slowdown in lending across the
industry runs counter to the optimism that bank executives have
said they are hearing from customers. Executives are hoping tax
reform kick-starts borrowing.
Investment banking rose 16% from a year earlier.
Expenses for 2017 were $54.743 billion, just above the $53
billion target the bank has set for 2018.
The lender's overall improving fortunes helped lift its stock
above $30 a share for the first time since 2008 earlier this year.
Shares are up 84% since the 2016 presidential election, when hopes
for deregulation, tax cuts and rate increases sent stocks in the
sector higher.
Still, the bank had to issue so many new shares to deal with its
crisis-era problems that per-share profits remain far below
pre-2008 levels. And the bank still trades at a lower valuation
than some competitors like JPMorgan Chase.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
January 17, 2018 08:27 ET (13:27 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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