BofA misses estimates as mortgage banking weighs on results

OF THE FOUR LARGEST BANKS in the United States, Bank of America Corp. reduced staff the most in the first quarter in an effort to trim costs.
Posted 4/17/13

(Updated, 10:15 a.m.)

NEW YORK - Bank of America Corp. reported first-quarter profit that missed analysts’ estimates as lower mortgage banking income and higher legal costs slowed the firm’s turnaround. The shares dropped 3 percent in early trading.

Net income advanced to $2.62 billion, or 20 cents a share, from $653 million, or 3 cents, a year earlier, according to a statement today from the Charlotte, N.C.-based company. The consensus of 25 analysts surveyed by Bloomberg had predicted 23 cents a share.

CEO Brian T. Moynihan, 53, has sold more than $60 billion in assets, settled more than $40 billion in mortgage claims and repaired the bank’s balance sheet since taking over in 2010. He’s now focused on trimming $8 billion in annual expenses and adding revenue, which dropped 8.4 percent on an adjusted basis to $23.9 billion.

“It’s going to be very hard for these banks to generate revenue, and mortgage is continuing to shrink,” Chris Whalen, managing director at Carrington Investment Services LLC, an asset manager in Greenwich, Connecticut, said in an interview. “The regulatory environment for mortgage is so hostile.”

Mortgage banking

Lower mortgage banking income and declining gains from the sales of debt securities weighed on results, the bank said. The quarter included a $500 million settlement of claims tied to faulty home loans. Last year’s first-quarter profit was reduced by $4.8 billion in pretax-accounting charges.

The net loss at consumer real estate services widened in this year’s quarter to $1.31 billion from $1.14 billion a year earlier. Adjusted revenue slipped at the unit while noninterest expenses climbed 4.5 percent to $4.06 billion and margins narrowed, the bank said.

Profit from global banking slipped 15 percent to $1.34 billion as the provision for credit losses increased. In the markets division, income fell 20 percent to $1.39 billion excluding the impact of accounting charges.

“As they’re fighting back the losses, they’re doing a good job,” said Marty Mosby, an analyst at Guggenheim Securities LLC in Memphis, Tennessee, who has a buy rating on Bank of America’s shares. “What’s becoming more apparent is that the core earnings power is still under pressure.” Mosby’s firm manages assets that include Bank of America stock.

Shares react

Bank of America slipped to $11.91 at 8:24 a.m. in New York. After leading the Dow Jones Industrial Average in 2012, the stock is trailing broad market benchmarks and most of its peers this year. The firm’s 5.8 percent advance through yesterday to $12.28 a share compares with 13 percent for the Dow and 8.5 percent for the 24-company KBW Bank Index.

The bank was the last of the four biggest U.S. lenders to report results. JPMorgan Chase & Co., the largest U.S. bank, said earnings rose 33 percent to a record as credit quality improved. Wells Fargo & Co.’s record income increased 22 percent aided by cost cuts and Citigroup Inc. posted a 30 percent rise as results from fixed-income trading and investment banking beat estimates.

Moynihan has spent his tenure as CEO cleaning up financial, legal and regulatory quagmires inherited when he was promoted to the top job in 2010. Slimming the firm has meant letting Bank of America fall out of first place among its peers in terms of assets and workforce, and the asset sales put more pressure on revenue, which has been hurt by sluggish borrowing.

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