Narrow profit for Bank of America, beating Street
ASSOCIATED PRESS October 17, 2012 8:40AM
Updated: October 17, 2012 12:20PM
NEW YORK — Bank of America said Wednesday that it narrowly turned a profit from July through September, good enough to beat Wall Street expectations.
The bank earned $340 million in the most recent quarter, which works out to a fraction of a penny per share. Financial analysts expected an 11-cent loss, according to a poll by FactSet, a data provider.
Profits were hurt largely because of a settlement with shareholders who accused the bank of misleading them when it decided in 2008 to purchase Merrill Lynch. The bank took a $1.6 billion charge to help pay for the settlement.
Profits were also hurt by a controversial accounting rule that eats into bank profits when the value of their corporate debt rises because the bank would have to pay more to buy back that debt on the open market.
Critics say the rule is confusing and punishes banks for success, and it could be phased out next year. The accounting rule forced Bank of America to take a $1.9 billion charge in the quarter.
Without those special items, revenue was essentially flat at $22.5 billion, beating the expected $21.9 billion.
It’s difficult to compare the results to those from the third quarter of 2011, because that period was also riddled with one-time gains and losses.
The bank made $6.2 billion then, which makes it look like the profits this quarter plunged. But the profit a year ago was driven by a gain from the accounting law and the bank’s sale of part of its investment in a Chinese bank.
But by other measurements, that was a poor quarter for the bank. Investors were fleeing the stock market, unnerved by a downgrade of the U.S. government’s debt and a congressional standoff over the national budget.
CEO Brian Moynihan is trimming Bank of America, a departure from his empire-building predecessors, and working through problem mortgage loans that the bank inherited when it bought Countrywide in 2008, before Moynihan was CEO.
“Our strategy,” he said in a statement, “is taking hold even as we work through a challenging economy and continue to clean up legacy issues.”
He noted that deposits, mortgage originations and small business lending all rose: “We are doing more business with our customers and clients.”
Bank of America is also, like many of its peers, cutting jobs and expenses to weather an uncertain economy. The bank shed more than 16,100 jobs from a year ago, or about 6 percent of its work force.
The decrease would have been greater if the bank hadn’t added extra employees to work through troubled mortgage loans. The bank also trimmed spending on occupancy, equipment, marketing and other expenses.
Bank of America stock was up 2 cents at $9.48 in premarket trading.