Business | Banking
Bank of America profit falls 41%
Bank of America Corp, the biggest US consumer bank and home lender, said second-quarter profit fell less than analysts estimated and that the purchase of Countrywide Financial Corp will add to earnings this year.
- Bloomberg
- Published: 00:07 July 22, 2008
New York: Bank of America Corp, the biggest US consumer bank and home lender, said second-quarter profit fell less than analysts estimated and that the purchase of Countrywide Financial Corp will add to earnings this year.
Bank of America advanced 9.5 per cent in early New York trading yesterday after the Charlotte, North Carolina-based company said net income declined 41 per cent to $3.41 billion, or 72 cents a share, from $5.76 billion, or $1.28, a year earlier.
That beat the 54-cent average estimate of analysts surveyed by Bloomberg and the US giant became the latest to beat forecasts in the hard-hit banking sector.
Four of the nation's five biggest banks have now reported better-than-estimated results, sparking a rally in financial shares that lifted Bank of America 48 per cent in three days last week.
Chief Executive Officer Kenneth Lewis completed the $2.5 billion purchase of Countrywide on July 1, betting that the bargain price and a rebound in home sales will make up for the current record wave of mortgage defaults.
"Countrywide will go down as a good, bold acquisition," said Bernie McGinn of McGinn Investment Management in Alexandria, Virginia, which holds 55,000 Bank of America shares, before results were released.
"If you have people scared about the prospects for their community bank, and there's a Bank of America office next door, then people are going to move their money. That's not being priced in."
Bank of America traded at $30.11 at 7:44am before the start of official New York Stock Exchange hours on Monday. The shares closed at $27.49 last week.
The bank said Countrywide will add to profit this year, and that cost savings will be "significantly'' more than the $670 million projected in January.
The mortgage lender lost $2.3 billion in the second quarter because of almost $4 billion in loan losses. When Bank of America announced the transaction in January, it said it expected Countrywide's impact on earnings would be "neutral."
"That's very good news," said Mary Jane Matts, a portfolio manager at Fifth Third Asset Management in Cleveland with $22 billion in assets under management, including Bank of America shares.
"If there was a cascading here of additional bad news for Countrywide, I think you'd see the stock moving the other way and about the same magnitude.''
The corporate and investment bank earned $1.75 billion, a 3.2 per cent increase from a year earlier. Writedowns on securities fell to $645 million from $1.47 billion in the first quarter.
After replacing the investment banking unit's leader last fall and cutting 650 jobs this year, Lewis reaffirmed his commitment to the business by hiring more than a dozen analysts and investment bankers from other Wall Street firms this year.
"Near-record investment banking income partially offset" writedowns of securities, the bank said in the statement.
The bank's results included $3.62 billion in net charge- offs, up 33 per cent from the previous quarter as credit quality weakened in markets where home prices have declined the most, the bank said.
The provision for future bad debts was $5.8 billion, triple the year-earlier amount and a three per cent decrease from the first quarter of this year.
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