Bank of America closed out the first year of Brian Moynihan's stint as chief executive with its second-consecutive writedown-driven loss. Moynihan called 2010 "a necessary repair and rebuilding year" and insisted the charges were putting problems behind the bank to start 2011 off well.
Analysts were split on which charges to include in estimates, making comparisons for investors more difficult. After initially falling, shares were recently up 0.2% to $14.57. The stock is up 28% in the past three months. The nation's biggest bank by assets, Bank of America did report improved credit quality in the fourth quarter. It also posted some total loan growth, with consumer and commercial loan balances both up.
The biggest charge in the quarter was $4.1 billion relating to outstanding and future mortgage repurchase claims. That charge included a $3 billion provision announced earlier this month when Bank of America agreed to buy back soured mortgages from Fannie Mae (FNMA) and Freddie Mac (FMCC).
But the settlement didn't settle all of the bank's trouble with investors in mortgage-backed securities. The bank raised its litigation war chest by $1.5 billion and Chief Financial Officer Charles Noski warned on a conference call that losses from private investors on mortgage-backed deals could be as much as $10 billion.
The bank continued to argue, however, that private investors will face a much harder time convincing the bank to buy back soured mortgages than Fannie and Freddie, and Noski doesn't expect to lose $10 billion.
There was also a $2 billion writedown on the value of the bank's mortgage operations. Adding to the bottom line was $360 million from the sale of so-called non-core assets, which the bank had to shed as a condition of exiting the government bailout. There was also a $1.2 billion tax gain.
Bank of America reported a loss of $1.24 billion, compared with a year-earlier loss of $194 million. On a per-share basis, which includes preferred dividends, the loss narrowed to 16 cents from 60 cents. Excluding the writedown, it would have earned 4 cents in the latest period.
Revenue fell 11% to $22.4 billion.
Analysts polled by Thomson Reuters had forecast earnings of 14 cents on $24.87 billion in revenue.
Thomson Reuters said the "majority" of its earnings estimates included the previously announced $3 billion repurchase provision and excluded the $2 billion writedown.
Credit-loss provisions plunged to $5.13 billion from $10.11 billion a year earlier and $5.4 billion in the prior quarter while the net charge-off rate was 2.87%, down from 3.71% and 3.07%, respectively.
Total loans increased from the prior quarter by 0.7%.
By business, the company's retail banking unit, which it calls deposits, took a hit from regulations as well, swinging to a $201 million loss from a $610 profit a year earlier. But global card services swung to a $1.5 billion profit from a $994 million loss, and was the biggest contributor to the bottom line as its loss provision plunged.
In its investment banking operations, which include Merrill Lynch, the company reported higher global wealth and investment management revenue from the prior quarter but a drop in trading revenue. Moynihan said on the conference call if trading revenue doesn't improve, the bank will have to "resize" the business.
Moynihan also reiterated the bank was "in a position to modestly increase" the dividend in the back half of 2011 but needs regulatory approval. For the latest updates PRESS CTR + D or visit Stock Market news Today
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