BofA results back CEO’s optimism
Bank of America Corp. Chief Executive Ken Lewis has been saying for months that Wall Street was too negative about the bank’s prospects. He backed that up with some hard data Monday.
The company beat analysts’ second-quarter earnings estimates despite setting aside $5.83 billion for bad loans, more than triple the amount it put aside a year earlier.
The second-biggest U.S. bank as measured by assets earned $3.41 billion, or 72 cents a share, in the quarter, down from $5.76 billion, or $1.28, a year earlier. Analysts had been expecting just 53 cents a share.
The results sent Bank of America’s shares up 12% before they fell back to close at $28.56, up $1.91, or 3.9%.
Still, the stock has rocketed nearly 60% since it closed at a multiyear low of $18.52 last Tuesday. Some gutsy investors have made several years’ worth of profit on the shares in four trading sessions.
Lewis stayed on point Monday in the bank’s conference call with analysts: He thinks the gloom is overdone about the economy generally and BofA’s prospects specifically.
“Although we, too, are sensitive about the health of the economy and monitor it closely, we do not yet see the economy slipping into a prolonged negative growth,” he said. “While we could be wrong, our analysis indicates continued economic sluggishness” in 2008 but “eventual stabilization later this year and the start of a recovery in the first half of 2009, albeit at a slow pace.”
As for the company’s loan losses, Lewis said: “Credit losses are still going up, but given what we see today they are manageable. Second, the fact that we can absorb $3.6 billion in credit losses, take $1.2 billion in additional write-downs, add $2.2 billion to our allowance for credit losses and still earn $3.4 billion should tell investors something about the extent and consistency of our earnings power.”
Some other highlights from the conference call:
* Lewis reiterated his intention to maintain the quarterly dividend at 64 cents a share. The stock currently yields 9% a year.
* Losses on home-equity loans continue to vex the bank as home prices slide. Losses recorded on home-equity loans came to 3.1% on an annualized basis in the quarter, up from 1.7% in the first quarter and 0.1% a year earlier. California and Florida account for 41% of the bank’s home-equity loan portfolio but 63% of the losses.
* The bank wrote off $645 million of its portfolio of complex securities known as collateralized debt obligations in the quarter, but that was down from a write-off of $1.47 billion in the first quarter.
* Investors who own debt securities issued by Calabasas-based mortgage giant Countrywide Financial Corp., which Bank of America bought July 1, won’t get a guarantee of repayment from the Charlotte, N.C.-based bank. “We don’t intend to guarantee the public debt but we do understand the ramifications of not paying that maturity,” said Joe Price, Bank of America’s chief financial officer.
Bond investors are concerned that Bank of America will absorb the best assets of Countrywide while keeping as much as $38 billion of Countrywide debt in a new unit created by the acquisition, Red Oak Merger Corp., Bloomberg News reported.
The investors speculate that Red Oak could then file for bankruptcy protection, shielding Bank of America from liability.
Price wouldn’t elaborate on the bank’s plans.
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