Bank of America posts profit after mortgage settlement
Bank of America Corp., which agreed to a record $16.7 billion settlement of government mortgage probes in August, posted a surprise third-quarter profit as revenue from trading stocks and bonds increased.
Net income was $168 million, down from $2.5 billion a year earlier, the Charlotte, N.C.-based bank said Wednesday. Adjusted earnings per share, which exclude an accounting gain, were 40 cents, beating the 32-cent average estimate of 14 analysts surveyed by Bloomberg.
Chief Executive Brian T. Moynihan, 55, who was named chairman this month, has said that the firm’s underlying earnings power would become apparent once legal and regulatory costs subsided. Bank of America’s profit in the quarter rose at every major business except real estate, the unit that bore the brunt of the settlement costs.
“Results continue to be marred by legacy and litigation costs, but the underlying earnings were actually slightly better than expected in both quantity and quality,” Chris Kotowski, an Oppenheimer & Co. analyst, said today in a research note. Kotowski has the equivalent of a buy recommendation on the bank’s shares.
Bank of America slipped 2.7% to $16.07 as the 24-company KBW Bank Index dropped 2% amid a broad stock selloff. The shares advanced 6.1% this year through yesterday, the second-best performance in the KBW index after Wells Fargo & Co.
Noninterest expenses rose 20% to $19.7 billion because of the government settlement. Excluding the accord, expenses would have dropped 10% to about $14.7 billion. Revenue slid 4.3% to $21.2 billion.
Profit rose at businesses overseen by Chief Operating Officer Thomas K. Montag, including a 24% increase in global banking to $1.41 billion as advisory fees climbed.
Trading profit gained 21% to $641 million, excluding the impact of accounting charges and tax adjustments. That was driven by an 11% jump in fixed-income sales and trading revenue to $2.25 billion, fueled by currencies, mortgages and commodities, and a 5.9% increase in equities revenue to $1.03 billion.
The bank’s fixed-income revenue surpassed estimates of $2.03 billion from Macquarie Group Ltd.’s David Konrad and $1.9 billion from Wells Fargo’s Matt Burnell.
Consumer-banking earnings increased 3.9% to $1.86 billion on a lower provision for credit losses. Wealth management profit rose 13% to a record $813 million as customer assets increased. The loss in the firm’s real estate division widened to $5.18 billion from $990 million a year earlier.
Bank of America announced the latest settlement in August, saying it would pay $9.65 billion in cash and $7 billion in consumer relief. The Justice Department probe was the last major legal hurdle from the mortgage business, and “the rest of the stuff is pretty well done,” Moynihan told analysts in May.
Countrywide Financial Corp., the lender Bank of America purchased in 2008, has been blamed by regulators for using lax underwriting standards and predatory lending that fueled its rise to the biggest U.S. mortgage lender before its collapse and sale. Angelo Mozilo, who co-founded the company, may face a civil suit, people with knowledge of the matter said in August.
“The company will need to show improved operating margins and profitability” now that most of its litigation costs are behind it, said Pri de Silva, senior banking analyst at CreditSights Inc. in New York. “The market environment for trading was fairly positive in September.”
Moynihan, who won permission this year to boost Bank of America’s quarterly dividend to 5 cents a share, succeeded Charles “Chad” Holliday, 66, as chairman. Jack Bovender, 69, who joined the board in August 2012, was elected lead independent director.
In August, Montag became sole chief operating officer after sharing the role with David Darnell. Darnell, 61, will be vice chairman and continue to oversee global wealth and investment management, as well as business banking, Moynihan told employees.
