Bank of America returns to profitability


A quarter after losing $1.8 billion, banking giant reports profit of $4.2 billion, topping Wall Street estimates; but stock falls on warning of weak credit quality.
By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Bank of America surprised Wall Street Monday, reporting a first quarter profit of $4.2 billion -- well ahead of expectations. But the stock fell in pre-market trading as the bank warned of "deteriorating credit quality."

On a per share basis, the company said it earned 44 cents during the quarter. A year ago, the bank reported a profit of $1.21 billion, of 23 cents a share.

The results were much better than analysts' expectations of a profit of $615 million, or 4 cents a share, according to Thomson Reuters.

Last quarter, the Charlotte, N.C.-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.



Ken Lewis, Bank of America's chairman and CEO, praised the company's latest results, citing contributions provided by Merrill and its other major purchase last year -- Countrywide Financial.

The purchase of the California-based mortgage lender helped Bank of America capitalize on the latest surge in mortgage lending and refinancing activity, the company said.

The bank added that Merrill Lynch contributed to earnings in a number of units, including Bank of America's wealth management and trading divisions.

Adjustments on some of Merrill Lynch's debt also helped Bank of America book a gain of $2.2 billion in net interest income during the quarter.

Also helping the company was a $1.9 billion pre-tax gain on the sale of part of its stake in China Construction Bank. Bank of America said it continued to own roughly 17% of the Chinese lender's common shares.

But Lewis cited growing credit problems at the bank, specifically the firm's consumer-related loan portfolios, as more and more Americans found themselves out of work or filing for bankruptcy.

Bank of America's credit card division, for example, swung to a net loss of $1.8 billion during the quarter, hurt by rising credit costs. The bank also added $6.4 billion to its loan loss reserves in the quarter.

Lewis added that the very issue of loan quality would be among the biggest issues facing the company going forward.

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

The company, however, maintained that it continued to extend credit during the first three months of the year. Many banks have been criticized for not using the billions of dollars in government assistance they've received for new loans.

During the quarter, Bank of America said it funded $85 billion in first mortgages, although 75% of that amount was for refinancing as opposed to home purchases

Bank of America also took pains to point out that it was working to help stem the tide of foreclosures across the country, saying it modified nearly 119,000 loans during the quarter.

Bank of America (BAC, Fortune 500) shares fell nearly 9% in pre-market trading Monday.

Bank of America is the latest big bank to report surprisingly strong numbers this quarter.

Over the past two weeks, rivals Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and even Citigroup (C, Fortune 500), which like Bank of America has received $45 billion in government assistance, have all delivered earnings that exceeded Wall Street's expectations




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