Bank of America, Morgan Stanley report earnings

Bank of America reported falling profit, but excluding a one-time accounting charge, its earnings beat estimates. (David Paul Morris / Bloomberg / April 19, 2012)

Income at both Bank of America Corp. and Morgan Stanley took a tumble in the first quarter, but excluding one-time accounting charges, both banks’ earnings managed to beat analyst expectations.

Both stocks are now trading up. Bank of America roared out of the gate before settling a bit in morning trading, where it is now up 1.3%, or 12 cents, to $9.04 a share. Morgan Stanley also deflated a bit after starting strong, but is still trading up 3.2%, or 57 cents, at $18.23.

Bank of America said its net income fell to $653 million, or 3 cents a share, from $2 billion, or 17 cents a share a year earlier.

But the bank attributed much of the slide to a $4.8-billion charge related to narrower credit spreads. Without the hit, BofA said its profit is up 40% to $3.7 billion, or 31 cents, from $2.6 billion, or 23 cents last year.

Revenue fell 17% to $22.5 billion from $27.1 billion.

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But “improving global markets sentiment as the European debt crisis stabilized coupled with favorable news regarding the U.S. economic environment” helped boost BofA’s revenue for its fixed income, currency and commodities (FICC) arm by $432 million.

Overall global trading income spiked to $798 million from a $768-million loss in the fourth quarter, though the amount still trailed last year’s first-quarter $1.39-billion profit.

With credit quality improving, the bank's bad-loan provisions fell 37% to their lowest level since mid-2007, the bank said.

The bank said it extended $102 billion in credit during the quarter, including $66.6 billion in commercial non-real estate loans, $15.2 billion in residential mortgages (84% for refinances) and $4.4 billion in cards for U.S.-based consumers and small businesses.

New credit card accounts were up 19%.

“Our strategy is paying off: With the economy steadily improving and because of the work we have done to strengthen and simplify our company, we saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year,” Chief Executive Brian Moynihan said in a statement.

Morgan Stanley, meanwhile, reported revenue dropping to $6.9 billion from $7.6 billion during the same quarter a year earlier due to a similar $2-billion credit spread-related accounting charge.

But without the charge, revenue was up 14% to $8.9 billion from $7.8 billion. Revenue from Morgan Stanley’s investment banking operations soared 33% to $5 billion.

The bank slumped to a loss of $78 million, or 5 cents a share, after earning $984 million, or 51 cents a share a year ago from continuing operations. Profit without the charge was $1.4 billion, or 71 cents a share.

Like Bank of America, Morgan Stanley also said that trading revenue was lifting even though its asset-management business was weak.

"This quarter is further evidence that Morgan Stanley has rebounded from the financial crisis of 2008 and is in a significantly stronger position,” Chief Executive James P. Gorman said in a statement.

Morgan Stanley also said it set aside $4.4 billion for employee compensation and benefits, a 3% increase from last year – including severance for the workers it laid off in January. Each of its more than 62,000 employees gets an average of about $74,000.

Goldman Sachs Group Inc. paid out roughly the same amount – a 16% smaller purse than last year. Each of its more than 32,000 workers will earn an average of $135,000. JP Morgan Chase & Co.’s allowance shrank 12% to $2.9 billion, giving each of its nearly 26,000 workers about $113,000 each.

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