Bank of America 1st-quarter profit tops expectations as trading offsets loan losses

BofA earns $2.83 billion in Q1 on strong trading

CHARLOTTE, N.C. — Bank of America said Friday its first-quarter earnings rose 0.7 percent to $2.83 billion as strong trading revenue helped the bank offset continuing losses on consumer loans.

The bank reported a $2.1 billion loss in its home mortgage business, but said its other consumer loan businesses were showing signs of healing.

Bank of America’s results after payment of preferred stock dividends are up slightly from $2.81 billion a year ago. They surpassed expectations and provided further evidence that the banking industry and the economy are recovering. JPMorgan Chase & Co. on Wednesday also reported improvements in its consumer loan business, and said continuing credit losses were offset by income from trading.

Bank of America set aside $9.8 billion to covered soured loans during the quarter, down 3 percent from $10.1 billion the previous quarter. A year earlier, it had set aside $13.4 billion. Many analysts predict loan losses should peak some time in the first half of 2010.

Bank of America CEO Brian Moynihan said during a conference call with investors that the bank expects modest economic growth through the rest of the year, but that loan growth will be weak.

“On the good side of that, we’re seeing the consumer and commercial health return which we believe will continue as the year progresses and add some momentum,” Moynihan said.

JPMorgan Chase also reported that it saw signs of improvement in the economy.

Still, home mortgages remain a trouble spot for Bank of America, the nation’s largest mortgage servicer. Although its set aside less money for overall loan losses, it increased the amount set aside for home mortgage losses, to $3.6 billion, as its mortgage losses widened. Net revenue in the unit fell 31 percent, as the bank saw lower mortgage production volume and a drop-off in refinance activity.

“Our work in progress remains mortgage,” Moynihan said.

Home loans were the only one of Bank of America’s six major business units to show a loss for the quarter. The company said losses in other consumer loans portfolios, including credit cards, fell.

The bank reported income of $952 million in the most recent quarter for the credit card unit, compared to a loss of $1.8 billion in the year-ago period. Bank of America said its provision for credit losses declined 57 percent due to the “improved economic outlook.” However, net revenue fell 9 percent to $6.8 billion as less loans and lower fee income were seen because of new credit card federal legistlation.

Bank of America reported that income from its global banking and markets business, which includes the Merrill Lynch investment banking operations, rose $709 million to $3.2 billion.

Banking analyst Nancy Bush of NAB Research said while trading profits have boosted quarterly profits, the question remains whether the banks can sustain them.

“I think the answer is no,” Bush said. “There is a very large component from these trading results that is coming from this continued low interest rate environment we are in. That’s going to change sooner than later.”

While the Federal Reserve keeps its federal funds rate near zero, banks are able to borrow cheaply and make money off higher-yielding investments in the financial markets. That has fed their big trading profits.

Charlotte, N.C.-based Bank of America earned 28 cents per share after paying preferred dividends. A year ago, it earned $2.81 billion, or 44 cents per share. Analysts expected profit of 9 cents per share in the most recent quarter, according to Thomson Reuters. Revenue totaled nearly $32 billion in the quarter.

Bank of America’s stock shed 78 cents, or 4 percent, to $18.70 in midday trading as the broader market also fell. Financial stocks were hurt by news that the Securities and Exchange Commission had filed civil charges against Goldman Sachs Group Inc. The SEC accused Goldman of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold.

The bank was among the hardest hit during the credit crisis, and received $45 billion in bailout funds from the federal government. Bank of America said in December it had repaid the money. Like nearly all banks in the country, the company faced waves of loan defaults as more customers fell behind and investments soured.

Earlier in the week, JPMorgan Chase said it earned $3.3 billion in the first quarter even as consumers continued to struggle to repay loans. The bank said it set aside $7 billion to cover bad loans during the most recent quarter. Its investment banking division and other businesses enabled it to more than overcome the ongoing weakness in lending.

Citigroup Inc. and Wells Fargo & Co. will report first-quarter earnings next week.

While the bank is still facing big losses from failed consumer loans, but CEO Brian Moynihan said there have been clear improvements in the economy.

Bank of America has about 58 million customers, including individual consumers and businesses. That breadth makes BofA particularly vulnerable to high unemployment, which currently sits at 9.7 percent.