Bank of America Corp. (BAC: Quote) on Thursday reported a significant drop in first-quarter profit as it took hefty accounting costs related to valuation of its credit spreads. On the positive side, loan loss provisions reached the lowest since the third quarter of 2007 and the lender saw a rebound in trading. The shares are rising close to 3 percent in pre-market trading.
Larger rival JP Morgan Chase & Co. (JPM) last week reported a marginal drop in first-quarter profit, amid a solid performance by the Retail Financial Services division and a plunge in bad loan provision.
BofA's net income applicable to common shareholders plunged to $328 million from $1.74 billion in the prior year and $1.58 billion in the prior quarter. Earnings per share declined year-over-year to $0.03 from $0.17.
The latest results include negative valuation adjustments of $0.28 per share from the narrowing of the company's credit spreads.
On average, 27 analysts polled by Thomson Reuters expected earnings per share of $0.12 for the quarter. Analysts' estimates typically exclude one-time items.
Total revenue declined to $22.28 billion from last year's $26.88 billion and the preceding quarter's $24.89 billion. Analysts estimated revenues of $22.51 billion for the quarter.
Revenue, net of interest expense, on a fully taxable-equivalent or FTE basis was $22.5 billion, including negative valuation adjustments of $0.28 per share related to changes in the company's credit spreads. Excluding the valuation adjustments in both periods, revenue was down 3 percent in the just concluded quarter.
In Consumer and Business Banking, net income declined due to lower revenue and higher credit costs, partially offset by lower non-interest expense.
The revenue decline in the division stemmed from lower non-interest income due to the implementation of debit card interchange fee rules and a decrease in net interest income owing to lower average loans and yields. Segmental revenues are on an FTE basis.
Global Wealth and Investment Management net income was almost flat with last year while revenue slipped 3 percent as a result of lower transactional activity.
Consumer Real Estate Services reported a narrower loss, amid high costs of managing delinquent and defaulted loans. Revenue increased due to higher mortgage banking income.
Global Banking's profit was in line with last year, as lower non-interest expense and lower credit costs from improved asset quality offset the decline in revenue.
In Global Markets, revenue dropped 20 percent from the prior year due to significantly higher debit valuation adjustment losses in the quarter under review. Net income declined significantly from last year.
Fixed Income, Currency and Commodities sales and trading revenue, excluding DVA losses, was $4.1 billion, an increase of $432 million from last year. The lender attributed the change to improving global markets sentiment as the European debt crisis stabilized coupled with favorable news regarding the U.S. economic environment.
Provision for credit losses touched the lowest since the third quarter of 2007 at $2.42 billion. This amounted to $3.81 billion in the prior year.
BAC, which closed at $8.92 on Wednesday, is rising about 3 percent in pre-market activity.
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by RTT Staff Writer
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