Bank of America reports encouraging Q1 results

After JPMorgan Chase, and surprisingly, Citigroup, reported first-quarter profits last week, Bank of America Corp., the largest US bank by assets, has followed suit. (See: JPMorgan Chase reports profit in first quarter and Citigroup reports $1.6 billion profit, $25 billion revenue in Q1)

The bank said its profit rose to $4.2 billion in the first quarter, from $1.2 billion a year earlier, as it posted revenue of $36 billion. It also reported earnings of 44 cents a share, compared with analysts' expectations of about 4 cents a share. It added $6.4 billion to its loan-loss reserves. Revenue more than doubled to $36 billion, from $17 billion a year earlier.

''The fact that we were able to post strong, positive net income for the quarter is extremely welcome news in this environment,'' Kenneth D Lewis, the bank's chairman and CEO said in a statement. ''It shows the power of our diversified business model as well as the ability of our associates to execute.''

''However, we understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment,'' he added. In February, he had asserted that the purchases of Merrill Lynch & Co. and Countrywide Financial Corp. were ''the two stars'' driving profit at the bank. (See: Bank of America buys Merrill Lynch / Bank of America agrees to purchase Countrywide Financial Corp)

Last quarter, the Charlotte, North Carolina-based bank suffered one of its worst periods in recent memory, logging a $1.79 billion loss. At that time, the company revealed it needed an additional $20 billion in government funds to help absorb last fall's purchase of Merrill Lynch. Including that round of capital, Bank of America has received $45 billion in government assistance since the onset of the financial crisis last fall.

The impressive results were helped by a $2.2 billion gain that it booked for a decline in the value of Merrill Lynch debt, in what is known as a credit-value adjustment. Accounting rules allow banks to book one-time gains on such declines because they could buy back the debt back cheaply if they chose. It also booked a $1.9 billion pretax gain on the sale of shares in China Construction Bank shares, in which it continues to hold a roughly 17 per cent stake. (See: Bank of America hits the wall in China)