Bank of America Corp., the third-largest U.S. bank, said first-quarter earnings rose 75 percent to a record as corporate lending, trading and the purchase of FleetBoston Financial Corp. bolstered results.
Net income increased to $4.7 billion, or $1.14 per share, from $2.68 billion, or 91 cents, a year earlier, when Bank of America didn’t yet own FleetBoston, Bank of America said in a statement. Profit growth may slow to 5 percent in the second quarter, when the comparison will reflect the $48 billion FleetBoston purchase, according to Thomson Financial estimates.
Bank of America, which is spending more than $600 million to expand its securities business, benefited from a surge in trading profit that mirrored gains reported by Wall Street rivals last month. Lower expenses and smaller loan-loss provisions, as well as consumer and corporate loan growth, also helped the Charlotte, N.C.-based bank top a Thomson estimate that net income would rise 46 percent.
“There were a lot of good things in the quarter but more than half of the earnings increase was due to non-recurring events,” said Richard Bove, an analyst at Punk Ziegel & Co. “None of that you would argue is sustainable.”
The bank set aside $120 million less in the quarter for loan losses and reduced expenses to below 50 cents per $1 of revenue. Trading profit rose to $760 million from $3 million.
Bank of America reported $1.16 in diluted earnings per share from operations, compared with 91 cents in the same quarter a year earlier. A Thomson Financial survey of 23 analysts predicted earnings of 97 cents per share from continuing operations.
The results gave Chief Executive Officer Kenneth D. Lewis a 14-quarter string of earnings increases. Bank of America’s large-business unit’s net income rose 92 percent to $1.1 billion as corporate lending increased in the Northeastern U.S., where FleetBoston was based. Revenue in the unit advanced 74 percent to $2.7 billion.
“We saw the strongest commercial loan growth in many quarters across our company and deposit growth continues to be robust,” Lewis said in a statement. Loans and leases increased 40 percent to $525 billion as deposits grew 48 percent to $627.4 billion.
Investment banking set records in profit and revenue. Net income in the unit rose 59 percent to $721 million as revenue from underwriting and merger advice increased 21 percent to $2.6 billion. “This was primarily due to increases in trading profits, led by sales of interest-rate products, equities and strong portfolio management,” the bank said.
Bank of America Chief Financial Officer Marc Oken said in an interview that he expects to win more business helping to underwrite securities and advising on mergers. “We see momentum carrying the next two quarters” in investment banking, he said.
Consumer and small-business lending profit advanced 77 percent to $1.9 billion as revenue increased 47 percent to $7 billion. The bank hasn’t yet had a decrease in consumer borrowing indicated by the unexpectedly large drop in consumer sentiment that the University of Michigan reported in its April survey, Oken said. The indicator fell to 88.7 from 92.6 in March.
Revenue climbed 47 percent to $14 billion. Net interest revenue increased 36 percent to $7.9 billion. Non-interest revenue jumped 65 percent to $6.1 billion. The bank reduced its provision for loan losses by 7.1 percent to $580 million.
Increases in short-term interest rates by the U.S. Federal Reserve narrowed the difference between what Bank of America pays depositors in interest and what it charges borrowers.
The bank’s net interest yield declined to 3.11 percent from 3.26 percent. Merger restructuring costs amounted to $112 million, or 2 cents a share.
Of the 28 analysts who follow Bank of America, 19 rate it a “buy,” eight consider it a “hold” and one recommends selling the stock. The analysts surveyed by Thomson have underestimated Bank of America’s earnings per share for at least the past five quarters.
Bloomberg News
