NEW YORK – Bank of America Corp., this year’s worst performer in the Dow Jones Industrial Average, posted a third-quarter profit on a $4.5 billion pretax accounting gain.
Net income of $6.23 billion, or 56 cents a diluted share, compared with a loss of $7.3 billion, or 77 cents, a year earlier, the Charlotte, N.C.-based lender said Tuesday in a statement. The average adjusted estimate of 24 analysts surveyed by Bloomberg was 21 cents.
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CEO Brian T. Moynihan, 52, has presided over a 55 percent drop in the stock this year. He vowed to make the lender smaller and more profitable by divesting unnecessary businesses and trimming $5 billion in costs, mostly by eliminating 30,000 jobs. He’s agreed to sell almost $50 billion in assets and units since taking over as CEO last year.
“Bank of America will remain profitable as you continue to see credit improve,” Jefferson Harralson, an analyst at KBW Inc. with a “market-perform” recommendation on the bank, said in an interview yesterday. “They should be making progress from a capital standpoint because of their asset sales.”
One of Moynihan’s first public actions related to his cost-cutting initiative, called Project New BAC, was a management shakeup last month that elevated Thomas K. Montag and David Darnell to co-chief operating officers while leaving Sallie Krawcheck and Joe Price without jobs.
Merrill Derivatives
Montag runs businesses that deal with corporate or institutional clients, including investment banking and trading, and Darnell manages the consumer operations, encompassing the retail bank and wealth management.
Bank of America, hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.
The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.
Accommodating Customers
Jerry Dubrowski, a spokesman for Bank of America, declined to comment on the transfers or the firm’s discussions with regulators. The company “continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA,” he said in an emailed statement, referring to the company’s deposit-taking unit.
Concerns over the European debt crisis and the possibility the U.S. economy may relapse into recession have weighed on the bank’s shares. The KBW Bank Index has slumped 30 percent this year through yesterday, and Bank of America is the worst performer among the 24 companies listed.
Bank of America may perform poorly compared with peers in another U.S. recession, while New York-based JPMorgan Chase & Co. may be best positioned, John E. McDonald, a Sanford C. Bernstein & Co. analyst, said in an Oct. 6 research note. Higher unemployment would cause more foreclosure and mortgage-related costs, he wrote.
Rival Banks
Monday, Citigroup Inc., the No. 3 ranked U.S. lender at midyear, said net income jumped 74 percent to $3.77 billion including a $1.9 billion accounting gain, known as a credit-valuation adjustment. Wells Fargo & Co., the No. 4 lender, said profit rose 22 percent to a record $4.06 billion. Last week, JPMorgan said net income fell 4 percent to $4.26 billion.
Bank of America’s third-quarter 2010 loss was fueled by a $10.4 billion writedown of its credit-card division after new U.S. regulations reduced its value.
To help recoup the lost revenue, the firm has added fee-based checking and said some debit-card users would be charged $5 per month. San Francisco-based Wells Fargo is testing a $3 monthly fee, and similar charges have been imposed by Regions Financial Corp. and SunTrust Banks Inc.
Bank of America’s plan sparked objections from critics including President Barack Obama. Five House Democrats asked Attorney General Eric Holder on Oct. 13 to investigate whether banks and trade groups colluded on decisions to impose new fees.
