(Updates with additional details, share movement)
By Saabira Chaudhuri
Bank of America Corp.'s ( BAC ) third-quarter profit surged as the banking giant benefited from sharply improved credit
quality that helped offset weak fixed income and mortgage banking revenue.
Revenue missed Street views.
Bank of America reported a profit of $2.5 billion versus a profit of $340 million a year earlier.
The most recent period included a net charge of eight cents tied to a reduction in the U.K. tax rate, among other
items. The year-earlier period included 28 cents in charges tied to a litigation settlement. On a per-share basis, which
includes the payment of preferred dividends, the bank reported a profit of 20 cents versus a profit of less than a penny
a year earlier.
Revenue rose 5.4% to $21.53 billion.
Analysts polled by Thomson Reuters expected per-share earnings of 18 cents on revenue of $22.03 billion.
Bank of America's results follow a trend set by rivals J.P Morgan Chase & Co. ( JPM ) and Citigroup Inc. ( C ), which both
reported weak trading revenue for the third quarter.
Fixed income, currency and commodities trading revenue was down at $1.77 billion from $2 billion a year earlier and $
2.29 billion in the second quarter.
Equities trading revenue of $945 million was up from $667 million a year earlier but down from $1.2 billion in the
The bank reported its global markets arm--which includes fixed income, currency and commodities trading as well as
equities trading--reported a loss of $778 million. This compares with a loss of $276 million a year earlier and a profit
of $958 million in the second quarter.
Also like rival banks, Bank of America reported weaker mortgage banking revenue as last year's mortgage refinancing
boom continues to fizzle amid a rise in long-term interest rates.
Mortgage banking non-interest income dropped 71% from a year earlier and 50% from the second quarter to $585 million.
Overall, the consumer real estate division reported a loss of $1 billion. In the year-earlier quarter and the second
quarter, the division reported losses of $857 million and $937 million, respectively.
Like its peers, Bank of America's results were bolstered by improving credit quality. Credit-loss provisions were down
sharply to $296 million, compared with $1.77 billion a year earlier and $1.21 billion in the second quarter.
The reduction in the allowance for loan reserves was $1.4 billion. The net charge-off rate improved to 0.73%, compared
with 1.86% a year earlier and 0.94% in the prior quarter.
Non-interest expense dropped 6.6% from the year earlier but climbed 2.3% from the prior quarter to $16.39 billion.
Bank of America's core consumer and business banking arm--which consists of its bread-and-butter branch banking and
also makes loans to small businesses--reported a profit of $1.78 billion, compared with a year-ago profit of $1.35
Meanwhile, the global banking arm's profit was $1.13 billion, compared with a year-earlier profit of $1.15 billion.
Firmwide investment banking fees, excluding self-led deals, were flat from the year earlier at $1.3 billion.
Net income in the Charlotte bank's wealth and investment management division rose 26% from the year-earlier quarter to
$719 million, while pretax margins, a closely watched efficiency metric, rose to 25.5% from 22.2% a year earlier.
Net interest income was $10.27 billion up from $9.94 billion a year earlier but down from $10.55 billion in the second
Banks have been struggling to drive growth through lending, relying more on tightening expenses and improved credit
quality to bolster earnings. However, Bank of America showed progress in this area, reporting total loans and leases
were $934.39 billion, up from the year-ago's $893.04 billion and the second quarter's $921.57 billion.
"This quarter, we saw good loan growth, improved credit quality and record deposit balances," Chief Executive Officer
Brian Moynihan said in a prepared statement.
The net interest margin--a key measure of lending profitability--was 2.44%, versus 2.32% a year ago. Analysts have
predicted that net interest margin pressures will ease amid a steeper yield curve.
For years, the Charlotte bank, one of the nation's largest by assets, has been dogged by the aftermath of the mortgage
meltdown, mainly losses from soured loans and legal claims from mortgages it originated and sold. For the third quarter,
litigation expense was $1.1 billion, from $471 million in the second quarter and $1.6 billion in the third quarter of
Shares were flat at $14.24 in recent premarket trading. Through Tuesday's close the stock has risen 23% so far this
Write to Saabira Chaudhuri at email@example.com
Corrections & Amplifications
This item was corrected at 8:42 a.m. because it misstated in the ninth paragraph that equities trading revenue was
down from a year earlier and up from the prior quarter, when in fact it was up from a year earlier and down from the
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