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BofA Profit Up 18%, Boosted by MBNA

From Bloomberg News and Reuters

Bank of America Corp., the second-largest U.S. bank by assets, said Wednesday that its earnings topped $5 billion for the first time last quarter as its acquisition of MBNA Corp. fueled a surge in credit card income.

Rival JPMorgan Chase & Co., the No. 3 bank, also reported strong results.

At Bank of America, second-quarter net income exceeded analysts’ highest estimate, rising 18% to $5.48 billion, or $1.19 a share, from $4.66 billion, or $1.14 a share, a year earlier, the Charlotte, N.C.-based bank said.

Excluding merger costs, earnings were $1.22 a share.

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The company’s stock surged $1.51 to $49.95, nearing its all-time closing high of $50.47 set May 5.

Bank of America’s card-service unit accounted for almost a third of the company’s revenue as the bank added 20 million customers from MBNA.

Chief Executive Kenneth Lewis boosted fees by selling MBNA-branded cards to existing Bank of America customers. He also cut 4,000 jobs to keep a lid on expenses.

“MBNA is exceeding our expectations both financially and operationally,” Chief Financial Officer Alvaro de Molina said. But even excluding MBNA, “we had strong revenue growth, great credit quality and significant traction from our investments.”

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Total revenue jumped 25% to $18.5 billion. It would have risen 6% had MBNA been a part of the company in the year-earlier period, Bank of America said.

The bank was expected to earn $1.10 a share, the average estimate of 26 analysts surveyed by Thomson Financial.

“MBNA appears to be paying off for them a little bit earlier than expected,” said Joseph Dickerson, an analyst at Atlantic Equities in London.

As for concerns about consumers’ ability to pay their bills amid soaring energy costs, “We don’t see anything that shows deterioration in the consumer,” de Molina said.

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Among other business units, the bank’s fee income from investment banking reached an all-time high of $645 million in the quarter. Revenue from capital markets and advisory services rose 39% to $2.12 billion.

Profit from trading stocks and bonds jumped to $915 million from $222 million a year earlier.

The addition of MBNA’s higher-rate credit cards helped the bank expand its lending margins at a time when rivals’ are contracting, squeezed by 17 straight increases in short-term interest rates by the Federal Reserve.

The bank’s net interest margin -- the difference between what it earns from loans and pays for deposits -- rose to 2.85% from 2.8% a year earlier.

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Bank of America may be interested in reentering the sub-prime consumer loan market, de Molina said. The bank stopped making loans to people with blemished credit in 2001.

The industry’s collection and pricing practices have “cleaned up” since then and “there’s nothing wrong with providing capital to people who need it,” de Molina said.

Among other large banks reporting results Wednesday:

* JPMorgan Chase & Co. said profit more than tripled to $3.54 billion in the quarter as fewer credit-card customers defaulted on debts and trading revenue in its Wall Street unit rebounded.

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The New York-based company’s shares jumped $2.34 to $43.05.

JP Morgan Chase’s equity-trading revenue rose more than sevenfold to $528 million from $72 million a year earlier, a period in which the bank racked up losses on some stock transactions. In fixed-income trading, revenue rose 43%.

JPMorgan’s credit card division, the second-biggest U.S. card issuer after Bank of America, was the company’s most profitable unit in the quarter. Profit swelled 61% to $875 million.

Credit card lenders are benefiting from comparisons with last year, when earnings were dented as some Americans rushed to file for Bankruptcy Court protection to pare their debts before a major bankruptcy law change took effect.

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The number of people filing for bankruptcy protection plunged 69% in the second quarter, according to Lundquist Consulting Inc., which collects data from U.S. Bankruptcy Courts.

* Atlanta-based SunTrust Banks Inc., the No. 3 bank in the U.S. Southeast by deposits, said profit rose 17% to $544 million, or $1.49 a share, in the quarter, as lending boomed.

Rising short-term interest rates have driven up SunTrust’s cost to hold deposits, which the bank mitigated by lending 12% more in the quarter.

* Pittsburgh-based PNC Financial Services Group Inc., Pennsylvania’s biggest bank, said earnings surged 35% to $381 million, or $1.28 a share, on higher fee revenue from money management and stock trading.

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