Andrew Gombert/European Pressphoto AgencyA Bank of America branch in Manhattan.Bank of America reported a slim quarterly profit on Wednesday, a small success for the bank after doling out huge payments to settle claims it misled investors about its takeover of Merrill Lynch during the financial crisis.
The bank reported $340 million in net income, a 95 percent drop from the $6.23 billion profit it posted in the period a year earlier. The results amounted to zero cents per diluted share, compared with 56 cents last year.
The bank’s revenue also dropped 28 percent, to $20.6 billion. The top and bottom line figures reinforced concerns that Bank of America, the nation’s second-largest by assets after JPMorgan Chase, had struggled to shed the legacy of the 2008 crisis.
Yet despite all the sharp declines, the results actually pointed to a small victory for the bank. The modest profit, padded by a $2.3 billion reduction in loan loss reserves, exceeded the estimates of analysts polled by Thomson Reuters, who had expected a loss of 6 cents a share. The bank also recorded improved investment banking income, which jumped 7 percent. Mortgage originations grew 18 percent, as interest rates remained at near record lows. And the bank’s wealth management unit continued its strong gains.
The otherwise bleak third-quarter results were widely expected. The bank announced a $2.43 billion deal last month to settle shareholders’ accusations that it had provided false and misleading statements about the health of Merrill Lynch as the Wall Street investment bank racked up huge losses in late 2008 amid turmoil in the markets.
“Our strategy is taking hold even as we work through a challenging economy and continue to clean up legacy issues,” Brian T. Moynihan, the bank’s chief executive, said in a statement.
The results reflect the murky nuances of Bank of America’s balance sheet. As the bank continues to cope with legal problems — and broader revenue concerns– it has introduced a sprawling cost-cutting overhaul, known as “New BAC.” The effort prompted the bank to shed assets and slash jobs by the thousands. The bank’s full-time headcount, for example, declined 5 percent in the third quarter to 272,594 employees.
Investors largely cheered the bank’s report on Wednesday, sending the bank’s shares up slightly in morning trading. Still, the market continues to struggle to find a coherent narrative in quarter after quarter of conflicting numbers.
In the third quarter, the bank racked up a $1.6 billion litigation expense paying for part of the Merrill Lynch settlement and other lawsuits. It also incurred a $1.9 billion charge on the perceived improvement in its debt, an accounting-related cost that actually indicated greater public confidence in the stability of the bank. A final charge from a British tax expense cost the bank $800 million.
Bank of America noted that most of the losses were baked into estimates, skewing the bank’s true performance. The litany of one-time expenses all told wiped out 28 cents a share from third-quarter earnings.
But the third quarter of 2011 told a misleading story as well. One-time gains, including the sale of unwanted assets, masked a modest overall performance.
The mixed results come as other banks report generally strong earnings. JPMorgan Chase and Wells Fargo posted major profit gains last week on the back of a booming mortgage business.
The mortgage business was a bright spot for Bank of America, as well. The improvement was owed to surging higher mortgage banking income and smaller provisions for credit losses. But the division was still dogged by mortgage delinquencies and defaults. The consumer real estate unit’s losses continued, but slowed to $877 million, a 20 percent decline compared to last year.
Bank of America’s legal woes, growing from bad mortgages created during the crisis era, have stalled the banks revival. The real estate division remains a money pit, as investors and government agencies push the bank to repurchase soured mortgages, arguing the mortgages were inappropriately created and sold. Much of the damage was done at Countrywide, the subprime lending specialist that Bank of America bought during the crisis.
Bank of America this year was also ensnared in with four other banks in $26 billion settlement related to improper foreclosure practices. The deal arose from a federal and state investigation into the mortgage servicing practices that revealed how banks evicted homeowners without proper documentation.
“I think we’ve clearly begun to turn a corner and at the same time you have to remain a little bit cautious,” Bruce R. Thompson, the company’s chief financial officer, said on a conference call.
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