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 The results for the second largest U.S. bank were strong across most
businesses, with consumer banking having its best quarter since 2011
and the wealth management and global banking divisions posting
record revenues.
"They're showing some positive momentum on growing their customer
base and their revenues," said Jonathan Finger of Finger Interests
Ltd, a Houston investment firm that owns shares in the bank.
"Certainly the stock has been performing very well."
Bank of America's shares rose 2.3 percent to $17.15 on Wednesday,
after earlier rising to $17.42, the highest level since May 2010.
The bank's shares rose 34.6 percent last year, outpacing the broader
market, and have risen some 250 percent from their post-crisis nadir
in December 2011.
Bank of America has been groaning under the weight of bad mortgages
it took on when it bought Countrywide Financial Corp in 2008, just
before the housing crisis turned into a full-blown banking meltdown.
The purchase has cost it more than $45 billion in write-downs and
legal settlements.
On Wednesday, the bank said losses in its mortgage unit fell to $1.1
billion in the fourth quarter from $3.7 billion in the same period
in 2012. In the year-earlier quarter, the bank reached several
settlements totaling more than $5 billion with the federal
government and mortgage finance giant Fannie Mae over foreclosures
and bad loans.
Results in the most recent quarter were hurt by an industry-wide
drop in mortgage refinancing activity, as rates have risen. The bank
made $11.6 billion in home loans, down 49 percent from the third
quarter.
Not all of the lingering problems from the financial crisis are
behind the bank. Litigation expenses jumped to $2.3 billion in the
fourth quarter from $916 million in the same period a year earlier.
Chief Financial Officer Bruce Thompson said the increase was tied to
mortgage securities litigation, but declined to elaborate.
Even so, the company is in a much stronger position than it was
during the financial crisis, when it took two bailouts from the
federal government. A measure of its capital that regulators look
at, known as the Basel III capital ratio, rose to 9.96 percent from
9.25 percent in the fourth quarter of 2012, and the bank said it
could last 38 months without having to tap the debt markets again.
Overall, fourth-quarter net income for common shareholders rose to
$3.18 billion, or 29 cents per share, from $367 million, or 3 cents
per share, in the same quarter of 2012, when profit was dented by
about $5 billion in mortgage-related charges. Revenues increased 14
percent to $22.3 billion. Analysts estimated earnings of 26 cents
per share, according to Thomson Reuters I/B/E/S.
"There's a company emerging from what was a pile of trouble," said
Nancy Bush, a banking analyst at NAB Research LLC.
Other banks are doing well now, too. JPMorgan Chase & Co and Wells
Fargo & Co both reported better-than-expected quarterly earnings on
Tuesday.
Bank of America's improvement has been helping one investor in
particular: Warren Buffett, whose Berkshire Hathaway Inc bought $5
billion of preferred shares and warrants from the bank in 2011, when
investors were panicking about its mortgage holdings. Buffett has
said he has no plans to exercise the warrants until near their
expiration date in 2021; if he exercised them at current prices, he
could sell the shares for an immediate $7 billion profit.
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LITTLE TERRIER
Bank of America's chief executive officer, Brian Moynihan, has
focused on cutting costs at the bank since he took the top job in
2010 and announced plans in 2011 to save the bank $8 billion per
year. The bank is making progress toward his goals — operating costs
in the fourth quarter fell by 6 percent to $17.3 billion.
"If you think back three years when he got there, nobody believed
that he could do what he's done," said Bush. "He's like a little
terrier. When you set him on a task, he's going to keep digging and
digging till he finds the bone."
Credit costs have also been falling. The bank set aside $336 million
to cover bad loans in the quarter, compared with $2.2 billion a year
earlier. It released $1.2 billion from reserves to cover bad loans,
compared with $900 million a year earlier and $1.4 billion in the
third quarter.
As the bank's executives get other issues under control, Moynihan
said last April, boosting revenue has to be the main focus.
Those efforts may be paying off. For the fourth quarter, Bank of
America's global wealth and investment management business posted a
7 percent increase in revenue, to $4.5 billion, driven by higher fee
income and customers depositing more funds into their accounts. Net
income rose 35 percent to a record $777 million.
Revenue also rose in investment banking, where fees increased 9
percent to $1.7 billion as companies around the world took advantage
of record high stock prices to raise equity capital. Bank of America
executives were optimistic the bank would benefit as dealmaking
activity and debt and equity underwriting increased.
"There's not one piece we look at within the pipelines that we don't
feel good about," Thompson said on the call.
Revenue for global banking as a whole rose 9 percent to $4.31
billion, but net income dropped 9 percent to $1.27 billion as the
company set aside more funds to cover possible losses on commercial
loans.
Equity trading revenue jumped 27 percent to $904 million from a year
earlier, and bond trading revenue rose 16 percent to $2.08 billion,
excluding accounting adjustments linked to changes in the value of
the company's debt. In bond trading, stronger results in credit and
mortgage products offset weakness in rates and commodities.
(Reporting by Peter Rudegeair in New
York and Anil D'Silva in Bangalore; editing by Dan Wilchins, Ted
Kerr, Jeffrey Benkoe and Leslie Adler)
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