By Peter Rudegeair And Christina Rexrode
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 0.5% 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.
The bank, which has been cutting costs methodically since the
financial crisis, now sees its fortunes tied to the timing of
interest rates rising, an environment that will likely allow the
bank to charge more on loans.
The industry is "still not in a rate environment that we'd like
it to be, " the bank's chief financial officer, Bruce Thompson,
said on a call with reporters Wednesday. He said the economy is in
a "continual grind toward the improvement side."
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.
The bank's trading divisions didn't perform as well as J.P.
Morgan, but Mr. Thompson said it was too early to tell how the bank
did overall in trading compared with a broader set of peers.
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.
Stock trading revenue was roughly flat at $1.15 billion. At J.P.
Morgan, overall trading was up 9% and stock trading was up 22% over
the same timeframe.
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.
The bank has also cut branches and staff. Bank of America had
219,658 full-time employees on its payroll at the end of the first
quarter, a 1.8% decline from the end of 2014 and a 7.9% decline
from the first quarter of 2014. Mr. Moynihan said Wednesday that
employee headcount is approaching levels not seen since early 2008,
before the acquisitions of Countrywide and Merrill Lynch swelled
the bank's ranks by 100,000 more employees.
BofA has struggled to grow its overall loan portfolio, however,
as it worked through its legacy consumer real estate loans.
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.
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. On the
call, Mr. Thompson called trends in the mortgage business
"encouraging."
Bank of America's investment-banking fees fell 3.6% in the first
three months of 2015 even as it posted the highest revenue from
advising on deals since its 2009 acquisition of Merrill Lynch.
That's because debt-underwriting fees, which make up roughly half
of BofA's business, declined by nearly 24%, which Mr. Thompson
attributed to regulatory restrictions on leveraged loans.
Write to Peter Rudegeair at peter.rudegeair@wsj.com
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