NY Times
Bank of America, the nation’s biggest bank, announced Tuesday that operating profit rebounded in the third quarter, helped by improved credit conditions among consumers and businesses.
On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.
Without the one-time charge, the bank earned $3.1 billion, or 27 cents a share. Wall Street had been expecting earnings of 16 cents a share, according to Thomson Reuters.
Analysts said the improving credit environment was a healthy sign, both for the bank and the broader economy. The bank set aside $5.4 billion in the quarter for credit losses, $2.7 billion less than the previous quarter and $6.3 billion less than the period a year ago.
“The biggest thing is that credit quality improved way more than anybody thought,” said Chris Kotowski, an analyst with Oppenheimer & Company. “That is the holy grail — anything else you can deal with. The one thing that kills value for banking institutions is when credit quality spirals out of control, so this should be the key to the stock doing well for the next year or two.”
Indeed, a substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, as the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.
In recent days, Bank of America shares have been hammered as investors worried about the impact of legal challenges to home foreclosures. After halting foreclosures across the country, Bank of America said Monday it was resuming the process in 23 states where court approval is required for a foreclosure to proceed.
One critical worry over the last week was that investors would force the bank to repurchase now-toxic mortgage backed securities, arguing that they were put together improperly.
These so-called “put-backs,” some analysts warned, could total tens of billions of dollars, undermining earnings for years to come. But the $872 million charge recorded for put-backs in the quarter indicates the threat is manageable, Mr. Kotowski said.
In the same quarter a year ago, Bank of America reported a loss of $2.2 billion, or 26 cents a share.
“We are adapting to the regulatory environment, credit quality continues to improve, and we are managing risk and building capital,” the chief executive, Brian T. Moynihan, said in a statement. “We are realistic about the near-term challenges, and optimistic about the long-term opportunity.”
Bank of America became the third major bank to report third-quarter earnings. JPMorgan Chase reported a $4.4 billion profit for the third quarter while Citigroup reported earnings of $2.2 billion, its third profitable quarter in a row.
On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.
Without the one-time charge, the bank earned $3.1 billion, or 27 cents a share. Wall Street had been expecting earnings of 16 cents a share, according to Thomson Reuters.
Analysts said the improving credit environment was a healthy sign, both for the bank and the broader economy. The bank set aside $5.4 billion in the quarter for credit losses, $2.7 billion less than the previous quarter and $6.3 billion less than the period a year ago.
“The biggest thing is that credit quality improved way more than anybody thought,” said Chris Kotowski, an analyst with Oppenheimer & Company. “That is the holy grail — anything else you can deal with. The one thing that kills value for banking institutions is when credit quality spirals out of control, so this should be the key to the stock doing well for the next year or two.”
Indeed, a substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, as the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.
In recent days, Bank of America shares have been hammered as investors worried about the impact of legal challenges to home foreclosures. After halting foreclosures across the country, Bank of America said Monday it was resuming the process in 23 states where court approval is required for a foreclosure to proceed.
One critical worry over the last week was that investors would force the bank to repurchase now-toxic mortgage backed securities, arguing that they were put together improperly.
These so-called “put-backs,” some analysts warned, could total tens of billions of dollars, undermining earnings for years to come. But the $872 million charge recorded for put-backs in the quarter indicates the threat is manageable, Mr. Kotowski said.
In the same quarter a year ago, Bank of America reported a loss of $2.2 billion, or 26 cents a share.
“We are adapting to the regulatory environment, credit quality continues to improve, and we are managing risk and building capital,” the chief executive, Brian T. Moynihan, said in a statement. “We are realistic about the near-term challenges, and optimistic about the long-term opportunity.”
Bank of America became the third major bank to report third-quarter earnings. JPMorgan Chase reported a $4.4 billion profit for the third quarter while Citigroup reported earnings of $2.2 billion, its third profitable quarter in a row.
