Bank of America’s quarterly profit drops 77 per cent but it still stays in the black
22 Apr 2008
The Bank of America, the US's second largest by assets, becomes the latest to declare its quarterly results in an economic climate not exactly conducive to profit making. Expectedly, the bank registered a 77 per cent decline in quarterly profit as a growing number of consumers and real estate developers failed to repay loans.
Bank of America's earnings report was still better than rivals Citigroup and Merrill Lynch, which unveiled net losses last week and announced aggressive job cuts to cut costs. Citigroup is the only US bank bigger than Bank of America in terms of assets, although the latter is ahead on market value after a great drop in Citi's stock.
Further bad news came from Wachovia, the fourth-largest bank in the US, which last week reported a surprise loss of $393 million for its first quarter.
First-quarter net income dropped to $1.21 billion or 23 cents per share, from $5.26 billion or $1.16 per share in the corresponding period last year. This fell far short of the 41 cents per share profit expected by Wall Street analysts. This was the third consecutive quarter that profits have dipped at Bank of America.
Revenue fell 6 per cent to $17.3 billion, slightly above the predicted average of $16.33 billion. Breaking up the losses, profit decreased 59 per cent in the consumer and small-business unit, and dropped a massive 92 per cent at the corporate and investment bank. Results included $1.31 billion in trading losses and $2.72 billion in costs for uncollectible loans.
Less encouraging, the bank, which is less geographically diversified than some of its Wall Street rivals, expects a growing number of house buyers, small businesses and house builders to default on their loans and it has set aside $6 billion to cover this.
This is $4.78 billion more than a year ago and reflects its deep exposure to the US mortgage market after its January purchase of the nation's biggest mortgage lender Countrywide Financial Corp. for $4.1 billion. Net charge-offs nearly doubled to $2.72 billion and non-performing assets nearly quadrupled to $7.83 billion.
"Despite revenue growth in most of our businesses, these results clearly did not meet our expectations," said Bank of America chairman and chief executive Kenneth Lewis. He scaled back a January forecast of 20 per cent earnings growth this year after reporting the two worst quarters since he took over in 2001. Lewis said he now expects "sequential profit improvement" for the rest of 2008.
The world's biggest banks and brokerages have disclosed $290 billion of write-downs and credit losses since June because of collapsing prices in US mortgage markets.
They've raised more than $160 billion to replenish capital, with Bank of America tapping public investors for at least $13 billion after write-downs and credit losses that totalled at least $8.2 billion before yesterday.
Bank of America stock slid 8.1 per cent in the first quarter, compared with JPMorgan's 1.6 per cent drop and Citigroup's 27 per cent decline. The 24-member KBW Bank index dropped 11 per cent. Bank of America supplanted Citigroup last year as the largest US bank by market value.
(Also see: After Merrill Lynch losses and job cuts, Citi loses $5.11 billion in Q1; to cut 9,000 jobs / Merrill Lynch posts deep quarterly loss; to cut 10 per cent of workforce / Wachovia reports $393 million Q1 loss; plans $7 billion capital infusion)
