By Peter Rudegeair
Bank of America Corp. said Wednesday that it swung to a
first-quarter profit as the second-largest U.S. bank by assets
started to recover from its large legal losses of prior years.
But results missed the expectations of analysts polled by
Thomson Reuters amid a trading performance that fell short of rival
J.P. Morgan Chase & Co.'s, pushing Bank of America shares down
about 0.7% premarket.
The Charlotte, N.C, lender reported a profit of $3.36 billion,
or 27 cents a share. That compares with a loss of $276 million, or
five cents a share, in the same period of 2014. Analysts had
expected earnings of 29 cents a share.
Revenue fell 5.9% to $21.42 billion. Analysts had expected
$21.51 billion. The decline in revenue stood in contrast to the
revenue growth reported Tuesday by J.P. Morgan and Wells Fargo
& Co.
Bank of America, under Chairman and Chief Executive Brian
Moynihan, is trying to rebound from a down year in which profits
plunged 58% on account of huge legal bills and the low-interest
rate environment holding back its lending income. The loss the bank
posted in the first quarter of 2014 was due to a $6 billion
litigation charge for mortgage-related settlements with federal
prosecutors and regulators.
Trading revenue, excluding an accounting adjustment, decreased
5.1% to $3.9 billion from $4.11 billion in the first quarter of
2014. The bank said record foreign-exchange trading results weren't
enough to offset weakness in trading credit and mortgage
securities.
The bank's fixed-income, currency and commodity trading revenue
decreased 6.8% to $2.75 billion from $2.94 billion in the first
quarter of 2014, while stock trading revenue was roughly flat at
$1.15 billion. At J.P. Morgan, fixed income trading was up 5% and
stock trading was up 22% over the same timeframe.
The income BofA generated from its loan portfolio continued to
shrink in the low interest rate environment. Net interest income
fell to $9.45 billion from $9.64 billion in the fourth quarter and
$10.09 billion in the first quarter of 2014.
Total loans fell to $877.96 billion from $881.39 billion in the
fourth quarter and $916.22 billion in the first quarter of 2014.
BofA has struggled to grow its overall loan portfolio as it worked
through its legacy consumer real estate loans.
Bank of America extended $13.7 billion in mortgages in the
quarter, helped by an increase in home refinancings spurred on by
falling mortgage rates. That's an increase of 55% from the $8.85
billion the bank extended in the first quarter a year ago.
Bank of America and other large lenders would benefit from
rising interest rates. The bank has said previously that it could
boost its annual net interest income by around $3.7 billion if
short- and long-term interest rates each rose 1 percentage
point.
Overall profits at Bank of America's consumer bank were more or
less unchanged at $1.48 billion. The global wealth and investment
management division posted profits of $651 million, a 11% decrease
from the $729 million it earned in the first three months of 2014.
BofA's global banking division, which includes its investment bank
as well as its commercial lending arm, recorded profits of $1.37
billion, up 5.7% from the $1.3 billion it reported in the same
quarter last year.
One bright spot came from the bank's expense control and
diminishing litigation headaches. Costs decreased 29% to $15.7
billion from $22.24 billion a year earlier. Costs in BofA's legacy
assets and servicing division, which handles delinquent mortgages,
fell to $1 billion from $1.6 billion in the same period of 2014 as
the number of loans that were over 60 days behind on their payments
fell to 153,000 from 277,000.
Legal expenses declined to $370 million from $6 billion in the
first quarter of 2014. Last year's first-quarter litigation charges
went partially towards a March 2014 settlement with federal housing
regulators and partially towards a future $16.65 billion
settlement, which was announced in August 2014, with federal and
state prosecutors. After spending more than $70 billion in fines
and settlements since the financial crisis, BofA executives have
said the bulk of its crisis-era legal woes have passed.
BofA's shares have fallen 12% since the start of the year
through Tuesday's close, the worst performer in the KBW index of
bank stocks.
Write to Peter Rudegeair at peter.rudegeair@wsj.com
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