Bank of America sees fourth-quarter profit, reversing year-earlier loss

Reuters, Thursday 19 Jan 2012

Troubled bank boosted its capital levels with asset sales and stock swaps in the latter part of 2011

Bank of America Corp reported a fourth-quarter profit, reversing a year-earlier loss, boosted by one-time items and lower expenses for bad loans.

Under pressure to shore up its balance sheet, Bank of America sold assets and completed a stock swap during the quarter that boosted its capital levels. And in 2012, the bank said it was considering issuing $1 billion in common stock to certain employees in lieu of a portion of their year-end cash bonuses.

That move would further pad the bank's capital levels, but would dilute existing shareholders and likely stir discontent among some bankers.

"Bank of America looks like it's making good progress on the capital build-up," said Derek Pilecki of Gator Capital Management in Tampa, Florida. "It's a work in progress with expense cuts continuing. They have to issue stock to make capital targets, but the dilution isn't overwhelming."

The second-largest US bank by assets on Thursday said net income applicable to common shareholders was $1.58 billion, or 15 cents per share, compared with a loss of $1.6 billion, or 16 cents per share, a year earlier. Like other large banks, Bank of America reported a decline in investment banking and sales and trading revenue.

The Charlotte, North Carolina-based bank benefited from pretax gains of $5.3 billion from the sale of China Construction Bank Corp shares, and gains from the exchange of trust preferred securities and the sale of debt securities. Various accounting charges and litigation expenses reduced earnings by $3.7 billion.

The bank set aside $2.9 billion in the fourth quarter for loan losses, down from $5.1 billion a year ago.

Bank of America, which is working to shed risky assets, said its total loans decreased to $926 billion from $932 billion in the third quarter. In its corporate bank, Bank of America said average loans and leases increased 29 per cent from the year-ago quarter to $107.5 billion with growth in both U.S. and international commercial loans.

Big bank peers Wells Fargo & Co and JPMorgan Chase & Co, as well as some regional banks, reported loan growth in the fourth quarter, potentially boding well for the U.S. economy.

Sales and trading revenue in Bank of America's banking and markets unit increased to $1.9 billion, excluding an accounting charge, from $1.1 billion in the third quarter but was down from $2.4 billion a year ago. Investment banking fees were flat from the third quarter at $1 billion but down from $1.6 billion a year ago.

In December, Chief Executive Officer Brian Moynihan said the bank had seen better results in this business in the fourth quarter after a weak third quarter.

JPMorgan Chase & Co, Citigroup and Goldman Sachs Group Inc reported lackluster trading revenue in the fourth quarter as clients shunned markets roiled by the European debt crisis. Bank of America bulked up its investment banking business with the 2009 purchase of Merrill Lynch.

"We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company," Moynihan said in a statement. "We built our capital ratios to record levels during 2011 on the strength of our core businesses and by shedding those that are not core to serving customers and clients."

Moynihan is working to show Bank of America, saddled with losses tied to the 2008 purchase of Countrywide Financial, has enough capital to absorb mortgage-related losses and to meet new international capital standards. Over the past two years, he has been shedding noncore businesses in an effort to boost capital levels and streamline the company.

The bank's shares plunged 58 per cent in 2011, partly on investor worries about capital. But through Wednesday, the shares were up 22 per cent this year at $6.80.

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