Bank of America Corp said its quarterly profit surged by nearly $3-billion, as revenue increased and mortgage losses plunged in the clearest sign yet the bank was shaking off the impact of the financial crisis.
The second largest U.S. bank has been groaning under the weight of bad mortgages it took on when it bought Countrywide Financial Corp in 2008, just before the housing crisis turned into a full-blown banking meltdown. The purchase has cost Bank of America more than $45-billion in writedowns and legal settlements.
On Wednesday, the bank said losses in its mortgage unit fell to $1.1-billion in the fourth quarter from $3.7-billion in the same period in 2012. In the year-earlier quarter, the bank reached several settlements totaling more than $5-billion with the federal government and mortgage giant Fannie Mae over foreclosures and bad loans.
Many expenses from the financial crisis are falling, but the bank’s revenues are also rising, and increased 14 per cent to $22.32-billion in the quarter, excluding an accounting adjustment. Boosting revenue has been one of Chief Executive Officer Brian Moynihan’s top priorities for the last year.
The improvement was evident in several Bank of America businesses. In wealth management, clients moved money into their accounts and borrowed more, helping to lift revenue by 7 per cent and profit by 35 per cent. In consumer banking, fee and interest income rose, lifting revenue by 1.3 per cent.
But the bank faces lingering problems from the financial crisis. Litigation expenses jumped to $2.3-billion in the fourth quarter from $916-million in the same period a year earlier. Most of the litigation related to issues linked to the meltdown that forced the U.S. government to bail out Bank of America twice.
But overall the positives in the quarter evidently outweighed the negatives. Fourth-quarter net income for common shareholders rose to $3.18-billion, or 29 cents per share, from $367-million, or 3 cents per share, in the same quarter of 2012, when profit was dented by about $5-billion in mortgage-related charges.
Analysts estimated earnings of 26 cents per share, according to Thomson Reuters I/B/E/S.
Bank of America’s shares, which soared 34.6 per cent in 2013, rose 3.1 per cent at $17.29 in Wednesday trading.
JPMorgan Chase & Co and Wells Fargo & Co both reported better-than-expected quarterly earnings on Tuesday.
“Capital and liquidity are at record levels, credit losses are at historic lows, our cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum,” BofA Chief Financial Officer Bruce Thompson said.
The bank set aside $336-million to cover bad loans in the quarter, versus $2.2-billion a year earlier. It released $1.2-billion from reserves to cover bad loans, compared with $900-million a year earlier, and $1.4-billion in the third quarter.
Operating costs fell by 6 per cent to $17.3-billion. CEO Moynihan has focused on cutting costs since he took the top job in 2010, and announced plans in 2011 to save the bank $8-billion per year.
Firmwide investment banking fees increased 9 per cent to $1.7-billion as companies around the world took advantage of record high stock prices to raise equity capital. Revenue for global banking as a whole rose 9 per cent to $4.31-billion, but net income for the group dropped 9 per cent to $1.27-billion.
Equity trading revenue jumped 27 per cent to $904-million from a year earlier.
Bond trading revenue rose 16 per cent to $2.1-billion as stronger results in credit and mortgage products more than offset weakness in rates and commodities.
Bank of America’s global wealth and investment management business reported record net income and asset management fees. Net income rose 35 per cent to $777-million, while revenue increased 7 per cent to $4.5-billion, driven by higher noninterest income related to long-term flows of assets under management and strong markets.