By Saabira Chaudhuri
Bank of America Corp.'s fourth-quarter profit sank 11% as the
banking giant was hit by lower revenue from trading and lending,
outweighing strong expense controls.
Shares fell about 2% in recent premarket trading as results
missed analyst estimates amid a sharper-than-expected slump in
revenue from the bank's large bond trading arm.
Charlotte-based Bank of America reported a profit of $3.05
billion, or 25 cents a share, down from $3.44 billion, or 29 cents
a share, a year earlier. Analysts polled by Thomson Reuters had
expected per-share earnings of 31 cents.
Revenue fell 13% to $18.73 billion, or to $18.96 billion on a
tax equivalent basis, which is comparable with analyst estimates.
Analysts had expected $20.94 billion.
Bank of America's earnings report comes as it, like its peers,
grapples with difficult markets, with trading volatility spiking
suddenly during parts of the fourth quarter after being slow for
most of the year. Chief Executive Brian Moynihan warned last month
that trading revenue would be lower.
On Thursday, the bank said its sales and trading revenue had
plunged 20% to $2.37 billion, excluding adjustments to the value of
its debt. Fixed income, currencies and commodities trading revenue,
on this basis, fell 30% to $1.46 billion, driven by what the bank
said are declines in credit and mortgages due to lower client
activity, partially offset by stronger results in foreign exchange
and rates. Meanwhile stock trading revenue was up 1.3% from the
year earlier at $911 million.
The Wall Street Journal reported last week that Bank of America
had recently moved to shrink its bonus pool earmarked for
investment-banking and securities employees after a lackluster
December
The results come after rival J.P. Morgan Chase & Co. on
Wednesday also reported trading revenue that was worse than many on
Wall Street had expected.
The quarter's results were also muddied by $1.2 billion worth of
accounting charges. For example, the bank took a one-time charge of
$497 million because it changed the way it values its
uncollateralized derivatives. Other banks have been taking similar
charges when making the switch. The bank also took a $578 million
hit due to the impact of falling long-term interest rates on the
firm's debt securities portfolio.
Meanwhile, litigation expense fell sharply, to $393 million from
$2.3 billion a year earlier.
Legal charges had been a key story line at Bank of America for
much of 2014, with the bank as recently as November adjusting down
its third-quarter results for a settlement over its
foreign-exchange practices. But, on this front, the lender has been
able to finish the year on a cleaner note.
"In 2014, we continued to invest in our businesses while
reducing expenses and resolving our most significant litigation
matters," said Chief Executive Officer Brian Moynihan. "We enter
2015 in good shape."
Mortgages also performed somewhat better. Bank of America
continued to feel the impact of a fizzling in the refinancing boom,
although less sharply in the fourth quarter. The bank's consumer
real estate division--which includes mortgage banking--reported a
loss of $397 million. The unit lost $1.04 billion a year earlier
and $5.18 billion in the third quarter, which was weighed down by
large litigation charges.
Mortgage volume showed signs of stabilizing, with residential
mortgage loan originations of $11.6 billion versus $11.7 billion in
the prior quarter.
The lender also showed progress on controlling expenses this
quarter. Bank of America's noninterest expense fell to $14.2
billion from $17.31 billion a year earlier and $20.14 billion in
the prior quarter. The latest expense was the lowest quarterly
expense reported by the company since merging with Merrill
Lynch.
On a call with journalists, Chief Financial Officer Bruce
Thompson said the "big driver" for the expenses reduction was lower
legal costs but added that even backing that out, noninterest
expense was down 8% from a year earlier, mainly due to lower costs
tied to servicing delinquent loans.
The bank, which has been one of the most aggressive in cutting
costs by reducing the number of branches, saw overall head count at
223,715, down from 242,117 a year ago.
In the quarter, Bank of America continued to see a tailwind from
lower provisions for bad loans. The bank's credit-loss provisions
were $219 million, compared with $336 million a year earlier and
$636 million in the third quarter.
The bank reported investment banking fees declined 13% from the
year-earlier to $830 billion. But the global banking arm logged a
14% rise in profit to $1.43 billion as expenses declined.
Profit in the bank's consumer and business banking arm--which
consist of its bread-and-butter branch banking and also makes loans
to small businesses--fell 12% from a year ago to $1.76 billion .
Total loans and leases ticked down 5% $881.39 billion.
The money Bank of America makes from interest it gets on loans
and investments has been a focus this quarter, with several
analysts predicting the profit metric would fall amid deposit
growth and lower securities reinvestment rates. Net interest income
fell 11% to $9.64 billion.
Bank of America's net interest margin, a key measure of lending
profitability, ticked down to 2.18% from 2.44% a year earlier and
2.29% in the prior quarter.
-Christina Rexrode contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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