Bank of America Corp. ( BAC ) reported Wednesday third-quarter profit surged, bolstered by an improving economy and some
new signs of life from consumers and businesses.
But the second-largest U.S. bank by assets wasn't immune to an industry-wide trend of weak trading revenue and a sharp
decline in the U.S. mortgage market.
Bank of America reported a profit of $2.5 billion versus $340 million a year earlier. Last year's figure was weighed
down by a $1.9 billion pretax valuation adjustment for improvement in the bank's credit spreads and a $1.6 billion
pretax litigation expense, among other items.
Revenue for the quarter rose 5.4% to $21.53 billion. Excluding certain debt-related charges, the bank posted revenue
of $22.19 billion. 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.
Analysts polled by Thomson Reuters expected per-share earnings of 18 cents on revenue of $22.03 billion.
In the first half of the year, banks across the industry offset weak results in their consumer businesses with strong
trading revenue and mortgage-banking income spurred by a refinancing boom. That largely ended across the board in the
At Bank of America, mortgage originations, which includes new purchases and refinances, was down 9% to $24.4 billion.
The volume of home loans was down 17% at J.P. Morgan Chase & Co. ( JPM ), 29% at Wells Fargo & Co. (WFC) and 16% at
Citigroup Inc. ( C ) from the second quarter.
Slumping bond markets and low volumes led to an especially precipitous drop in fixed-income trading. At BofA, revenue
from the bank's fixed-income unit was down 23% to $1.77 billion from the previous quarter. Excluding certain debt
related charges, BofA's fixed-income revenue was down 13%. Revenue was down 16% from the second quarter at J.P. Morgan
and 17% at Citigroup, excluding debt-related charges.
Bank of America's global markets arm--which includes fixed income, currency and commodities trading as well as
equities trading-widened its loss to $778 million from a loss of $276 million a year earlier. Excluding certain debt-
related charges and a foreign tax-rate change, the global markets arm reported net income of $531 million, down 39% from
a year earlier.
Mortgage banking non-interest income dropped 65% from a year earlier to $774 million. Overall, the consumer real
estate division widened its loss to $1 billion from a loss of $857 million a year earlier.
Despite those setbacks, the bank saw some positive, albeit moderate, signs of growth in its core consumer unit and in
loans to businesses.
"Demand has picked up over the last couple of years," said Chief Executive Brian Moynihan. He said companies are still
using lines of credit at lower levels than during normal economic times. But, he added, "it's still not as strong as it
would be because of the 2% growth rate economy."
The bank saw growth in net interest income, or the net income from interest it charges on loans. From a year earlier,
net interest income was up 3.3% to $10.27 billion.
Total loans and leases were up 4.6% to $934.39 billion from a year earlier. Consumer loans were down across most
segments but commercial loans grew 19.4%, led by a 19.6% spike in commercial real estate loans and a 9% jump in
commercial and industrial loans.
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 31.7% rise in net income to $1.78 billion, spurred by a rise in net
interest income, lower credit costs and expense reduction efforts.
The global banking unit, which includes loans to businesses, saw its net income drop about 1.7% to $1.13 billion from
a year-earlier due to a $322 million provision for credit losses.
Overall results also got a boost from improving credit across much of the industry. Credit-loss provisions were down
sharply to $296 million, compared with $1.77 billion a year earlier.
The bank's wealth and investment management division saw its net income rise 26% from the year-earlier quarter to $719
million, while pretax margins in the unit rose to 25.5% from 22.2% a year earlier.
Scott Paer, an associate at Montieth & Co., said it was "not a bad quarter given the environment" and said BofA showed
"solid execution." Edward Jones analyst Shannon Stemm said the results show that "Bank of America continues to march
back toward a more normalized level of earnings."
Shares of Bank of America were up about 2% Wednesday.
But Citigroup analyst Keith Horowitz said Bank of America is still "playing catch up" to its rivals.
The Charlotte, N.C. based bank has been plagued by legal costs tied to its 2008 acquisition of Countrywide Financial
Corp. Losses from that deal are estimated to be close to $50 billion.
Mr. Moynihan has attempted to put the bank's legal troubles behind it and made some headway in the third quarter. For
the third quarter, litigation expense was $1.1 billion, down 31% from a year earlier. The bank added about $371 million
in legal expenses in the third quarter from the second quarter, a sign its legal troubles aren't over. Executives said
on a call with analysts that the quarterly increase that reflects ongoing discussions over outstanding litigation.
Total expenses dropped 6.5% from the year earlier period to $16.39 billion. The bank said it saved about $100 million
in the third quarter as part of an expense-reduction program called New BAC, which was instituted by Chief Executive
Brian Moynihan to slim down the bank's sprawling operations and focus exclusively on growing by selling more products to
existing customers. The bank cut 9,000 in the third quarter and has reduced its total employee headcount by more than 9%
from a year earlier. The bank closed 297 branches since last year.
Write to Saabira Chaudhuri at Saabira.Chaudhuri@wsj.com and Shayndi Raice at Shayndi.Raice@wsj.com
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