Bank of America profit triples to $4.2bn

Bank of America profit triples to $4.2bn
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: April 20 2009 12:55 | Last updated: April 20 2009 18:05
http://www.ft.com/cms/s/0/ab639b8c-2d98-11de-9eba-00144feabdc0.html


Bank of America on Monday reported net income more than tripled to $4.2bn in the first three months of the year, well ahead of analysts’ expectations, as mortgage refinancing and commercial banking revenues boosted its performance.

The bank’s profits of $0.44 a share beat consensus expectations that it would earn $0.04 a share and represented a sharp improvement from the $0.23 a share, or $1.2bn, from the same period last year. But shares of Bank of America fell by 19.34 per cent to $8.55 in early afternoon trading on Monday as investors were spooked by the bank’s warning of deteriorating credit quality and its swelling provisions for additional credit losses.

”The fact that we were able to post strong, positive net income for the quarter is extremely welcome news in this environment,” Kenneth Lewis, Bank of America’s chief executive, said in a statement. ”It shows the power of our diversified business model as well as the ability of our associates to execute.”

The results included a $1.9bn pre-tax gain on the sale of China Construction Bank shares.

Last month Mr Lewis said he hoped to repay the $45bn in taxpayer funds borrowed through the government’s bank recapitalisation scheme by the end of 2009. In a conference call with analysts he said that he absolutely did not think that Bank of America needed additional capital.

In spite of the record results, Mr Lewis, who has faced calls for his resignation in recent months, warned that the global economic outlook remained uncertain.

“We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment,” Mr Lewis said.

The Charlotte-based bank said its provision for credit losses rose from $8.5bn in the fourth quarter of last year to $13.4bn in the first quarter of this year. That included a $6.4bn addition to its allowance for loan and lease losses as consumers face worsening pressure from rising unemployment. The bank suffered $1.8bn in credit card losses, compared with a gain of $867m a year ago.

Bank of America produced record revenue of $36bn in the first quarter. The results were boosted by its acquisitions of Countrywide and Merrill Lynch. The Merrill Lynch acquisition, which closed in January, added $3.7bn to Bank of America’s net income, while it benefited from added volume of mortgage lending and refinancing volume from Countrywide.

Bank of America boosted its tangible common equity ratio – a measure of financial health - to 3.13 per cent from 2.93 per cent at the end of 2008. Its tier 1 capital ratio rose from 9.15 per cent to 10.09 per cent.

In the first quarter, Bank of America said it funded $85bn in first mortgages and originated $16bn in mortgages to low and moderate-income borrowers. Its retail deposits rose by 27 per cent to $140bn from a year ago, fuelled by balances from its Countrywide and Merrill Lynch deals.

”Our company continues to be a solid contributor to the effort to revitalise the US economy through our industry-leading efforts to reform mortgage lending, restructure home loans where appropriate and mitigate foreclosures wherever possible,” Mr Lewis said. “We look forward to continuing that role.”

Bank of America’s results come as JPMorgan Chase and Goldman Sachs also reported better-than-expected results last week and Wells Fargo signalled that it would earn record profits this quarter, giving hope that the stricken banking sector may be starting to recover.