October 14, 2008
- Roseburg, Oregon
Bank of America profit shrinks, beats Wall Street
By Associated Press
CHARLOTTE, N.C. (AP) - Bank of America Corp. has become the latest in a string of big banks whose second-quarter earnings, while hurting from the impact of the credit crisis, still managed to beat Wall Street expectations.
The nation's second-largest bank by assets said Monday its profit fell 41 percent, as losses in its struggling mortgage operations were offset by business in other parts of the company. But it easily beat Wall Street estimates, and shares rose $3.00, or almost 11 percent, to $30.49 in morning trading. "It is clear that many investors see the economy getting substantially worse causing major problems for consumer, commercial businesses and bank earnings," said Chief Executive Officer Ken Lewis on a conference call with analysts. "Although we too are sensitive about the health of the economy and monitor it closely, we do not yet see the economy slipping into prolonged recession." Four of the nation's five biggest banks have now reported better-than-estimated results, sparking a rally in most financial stocks last week that continued into Monday's trading. JPMorgan Chase & Co. and Wells Fargo & Co. reported smaller-than-expected profit declines, while Citigroup Inc. had a milder-than-expected $2.5 billion loss. Wachovia Corp., the nation's fourth-largest bank, is expected to report earnings Tuesday. The Charlotte-based bank has said it may post a $2.6 billion to $2.8 billion loss for the quarter. Bank of America, also based in Charlotte, reported net income of $3.41 billion, or 72 cents per share, on $20.32 billion in revenue, in the April-June period. That compared with net income of $5.76 billion, or $1.28 per share, on $19.63 billion in revenue a year earlier. Analysts on average expected a profit of 53 cents per share on $18.37 billion in revenue. Bank of America said credit quality continued to weaken during the quarter, particularly in markets that experienced the most significant home price declines. The company more than tripled the amount it set aside for bad loans to $5.83 billion, up from $1.81 billion a year ago, largely for consumer and commercial portfolios directly tied to the housing market, including home equity, residential mortgages and homebuilding. The figure surged to $6.01 billion in the first quarter. Net charge-offs, loans it doesn't think are collectable, jumped to $3.62 billion, up from $1.5 billion a year ago, reflecting housing market deterioration and slowing economic conditions, the company said. Write-downs tied to disrupted capital markets totaled $1.22 billion, down from the first quarter's $2.81 billion. Profit in consumer and small business banking fell 66 percent to $812 million. The corporate and investment bank saw profit rise 3 percent to $1.75 billion. In wealth and investment management, profit fell 1 percent to $573 million. "Most of our businesses are performing well even with the current state of the economy and the problems with housing," Lewis said. "However, as I said, we are not in denial. Credit losses are still going up, but given what we see today, they are manageable." Bank of America completed its $2.5 billion purchase of Countrywide Financial Corp. on July 1, a deal it now says will add to its profits this year. Second-quarter results included $212 million of merger and restructuring costs. Countrywide, whose results weren't part of Bank of America's figures, posted a second-quarter net loss of $2.33 billion, including just under $4 billion in credit-related losses. Bank of America has said it plans to cut about 7,500 jobs as it integrates the company into its own operations. The job cuts amount to about 12.5 percent of the combined companies' mortgage, home equity and insurance businesses. The cuts will take place over the next two years in locations across the country "in instances where the two companies have significant overlap," the bank said last month. |
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