Bank of America Corp. saw its fourth-quarter profit surge from a year-earlier period that was marred by charges as the
bank made progress cutting costs and benefited from lower provisions for soured loans.
Shares rose 2.9% to $17.27 in early trading as results beat analyst estimates. Investors welcomed the company's cost
controls, surprisingly strong revenue in fixed-income trading and growth across businesses from consumer banking to
wealth management and investment banking.
The Charlotte-based bank logged a large litigation expense but was helped by a narrower loss in its consumer real-
estate division, which includes mortgage banking, even as mortgage originations slowed.
Overall, Bank of America reported a profit of $3.44 billion versus a profit of $732 million for the fourth quarter of
2012, which was weighed down by charges tied to a $11.6 billion settlement with Fannie Mae.
On a per-share basis, the bank reported a profit of 29 cents, compared with the 26 cents a share expected by analysts
polled by Thomson Reuters. Revenue climbed 15% to $21.49 billion, compared with analysts' expectation of $21.24 billion.
Bank of America's "core businesses delivered good growth, especially in capital markets, while the company continues
to chop away at its legacy issues," noted RBC analyst Gerard Cassidy.
The second-largest U.S. bank by assets has made progress in recent quarters in moving beyond expensive legal woes tied
to its 2008 acquisition of home lender Countrywide Financial Corp. But an economy still growing slowly, declining
mortgage refinance activity and volatile trading revenue have continued to remain a challenge for banks across the
industry, including Bank of America.
The results come as CEO Brian Moynihan looks to methodically build back a financial institution that suffered heavily
from past mistakes. Mr. Moynihan has been leading a push for Bank of America to cross-sell various products in areas
such as the firm's brokerage division, while making a renewed push into mortgages after the bank backed away from that
business somewhat in 2011 and 2012.
"We've been on a journey of simplifying our company," Mr. Moynihan said on an analyst call Wednesday. "As a result of
all this work, earnings have improved significantly, but we still have not approached the true earnings potential of
Bank of America."
Bank of America's consumer real-estate division--which includes mortgage banking--reported a loss of $1.06 billion. In
the year-earlier quarter and the third quarter, the division reported a net loss of $3.7 billion and $1 billion
Mortgage originations in the division declined 46% from a year earlier, which Bank of America said reflected "a
corresponding decline in the overall market demand for mortgages." But the division benefited from a fall in the amount
of money the bank set aside for potential issues with its loans' representations and warranties.
Like peers Wells Fargo Co. and J.P. Morgan Chase Co., Bank of America's results continued to be bolstered by reduced
provisions for soured loans. Credit-loss provisions fell to $336 million from $2.2 billion a year earlier, though they
rose slightly from $296 million in the third quarter. The reduction in the allowance for loan reserves was $1.2 billion.
For years, Bank of America has been dogged by the aftermath of the mortgage meltdown, mainly losses from soured loans
and legal claims from mortgages it or its predecessors sold.
The bank's litigation expense is likely to remain high given ongoing lawsuits like those with the Justice Department
and the Federal Housing Finance Agency, Citigroup analyst Keith Horowitz wrote in a note before Wednesday's earnings.
For the fourth quarter, Bank of America's litigation expense was $2.3 billion, compared with $916 million a year
earlier and $1.1 billion in the third quarter.
Bank of America and other large banks have been cutting jobs in response to lower demand for mortgage refinancing and
shrinking portfolios of bad loans. The effort is part of the bank's push to increase profitability. On the analyst call,
chief financial officer Bruce Thompson said he hoped the bank would be able to improve its return on equity, a key
profitability metric to 14%, over the next three years, up from about 7% in 2013.
For the fourth quarter, Bank of America's noninterest expense was $17.31 billion compared with $18.36 billion a year
earlier and $16.39 billion in the prior quarter.
Bank of America "has by far the largest cost-cutting story with $9 billion of cost savings still ahead," Atlantic
Equities analyst Richard Staite wrote in a recent note.
Revenue from the bank's fixed income, currency and commodities division, excluding adjustments to the value of the
bank's debt, was $2.1 billion in the fourth quarter, up 16% from the year earlier, driven by what Bank of America said
was stronger results in credit and mortgage products that more than offset weakness in rates and commodities.
The comparable number for stock trading rose 27% to $904 million.
Banks have been struggling to drive growth through lending, relying more on tightening expenses and improved credit
quality to bolster earnings. But Mr. Moynihan recently said he expects loan growth to be incrementally better in 2014
than last year due to solid consumer spending and an improving housing market.
Bank of America's core consumer and business banking arm-which consist of its bread-and-butter branch banking and also
makes loans to small businesses-reported a profit of $1.97 billion, compared with a year-earlier profit of $1.45
Write to Saabira Chaudhuri at firstname.lastname@example.org
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