Financial services firm Bank of America Corp. (BAC), Wednesday, reported $5.2 billion net loss applicable to common shareholders in the fourth quarter, reflecting higher credit costs, the one-time impact of the company's repayment of the U.S. government bailout fund and preferred stock dividends. Quarterly revenues were higher, driven by solid non-interest income growth. Among the bank's segments, Home Loans & Insurance, Global Banking, Global Markets and Global Wealth & Investment Management recorded revenue growth.
Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The bank's retail-banking operations covers about 82% of the U.S. population in 13 of the 15 fastest-growing U.S. states and in 32 states overall.
Q4 Details
The bank reported a fourth-quarter net loss of $194 million, narrower than a net loss of $1.79 billion reported in the same period a year earlier.
Including dividends on preferred stock and the one-time $4 billion negative impact associated with repaying the $45 billion bailout under the federal government's Troubled Asset Relief Program, or TARP, loss applicable to common shareholders was $5.2 billion or $0.60 per share, compared to a net loss of $2.39 billion or $0.48 per share, in the year-ago quarter. The bank stated that the fourth-quarter results reflected continued elevated credit costs.
On average, 25 analysts polled by Thomson Reuters expected a loss of $0.52 per share for the quarter. Analysts' estimate typically excludes one-time items.
The bank's revenue, net of interest expense on a fully taxable-equivalent basis, rose to $25.08 billion from $15.68 billion a year ago, partially reflecting the addition of Merrill Lynch. Seventeen analysts had a consensus revenue estimate of $26.84 billion for the quarter.
Net interest income on a fully taxable-equivalent basis declined 11% to $11.9 billion from $13.4 billion a year earlier. The decrease reflected lower asset liability management portfolio levels, reduced loan levels and the unfavorable impact of higher non-performing loans. This was partially offset by the addition of Merrill Lynch, the bank noted.
Fourth-quarter non-interest income rose to $13.52 billion from $2.57 billion in the prior-year quarter. According to the bank, higher trading account profits, investment and brokerage services fees and investment banking income reflected the addition of Merrill Lynch and significantly lower market disruption losses. The current quarter also included a $1.1 billion gain on the company's investment in BlackRock as a result of its purchase of Barclay's asset management business. Card income was lower mainly due to higher credit losses on securitized credit card loans and lower fee income.
Further, Bank of America stated that credit quality showed signs of improvement in most portfolios compared with the prior quarter, although credit costs remained high as global economic conditions remained challenging. Rising unemployment and underemployment kept consumers under stress and individuals spent longer periods without work. However, losses narrowed in most consumer portfolios from the prior quarter.
In addition, the impact of the weak economy on the commercial portfolios moderated somewhat with a decrease in criticized loans and the slow growth of non-performing loans. Losses in the homebuilder portfolio dropped from the prior quarter and losses in the commercial domestic portfolio declined across a broad range of borrowers and industries, the bank stated.
Bank of America also said the integration of Merrill Lynch remained on track with cost savings surpassing original estimates for the first year.
Q3 Comparison
In the preceding third quarter, the bank had reported a loss of $2.24 billion or $0.26 per share, reflecting higher provision for credit losses and a charge to terminate the bank's asset guarantee term sheet with the U.S. government. However, total revenue, net of interest expense on a fully taxable-equivalent basis, rose 32% to $26.4 billion from $19.9 billion a year ago.
Segmental Synopsis
Deposits
In the fourth quarter, Deposits total revenue, net of interest expense, declined to $3.45 billion from $4.66 billion a year ago. Fourth-quarter net income fell 62% to $595 million due to lower revenue and an increase in noninterest expense. The decline in revenue included the impact of implementing new initiatives aimed at assisting customers who are economically stressed by reducing the amount of their banking fees.
Global Card Services
Global Card Services revenues, net of interest expense, were $7.16 billion, compared with $8.02 billion in the prior-year quarter. Net revenue dropped 11% as net interest and fee income declined, partially offset by lower operating and marketing costs. The segment's fourth-quarter net loss was $1 billion, compared with a loss of $9 million in the previous year, due to higher credit costs and lower managed revenues hurt by the impact of the weak economy.
Home Loans & Insurance
Home Loans & Insurance generated quarterly revenues, net of interest expense, of $3.79 billion, up from $3.25 billion in the previous year. The revenue growth was attributable to higher income from loan production, partially offset by lower servicing revenue due to unfavorable mortgage servicing rights results. The segment also posted a net loss of $993 million, wider than last year's $707 million. Higher production volume and delinquencies led to increased expenses.
Global Banking
Further, the bank's Global Banking revenues, net of interest expense, rose to $4.93 billion from $4.06 billion last year, due to the impact of the Merrill Lynch acquisition. Fourth-quarter net income declined 74% to $264 million, driven by higher credit, FDIC insurance and compensation costs. Provision for credit losses were higher due to higher net charge-offs and reserve additions within the commercial real estate portfolio.
Global Markets
Global Markets revenues were $3.44 billion, versus negative revenue of $4.56 billion in the same quarter of fiscal 2008. The bank attributed the revenue growth to a more favorable trading environment compared with last year, including significantly lower market disruption charges, and the addition of Merrill Lynch. The business reported a net income of $1.18 billion versus a net loss of $3.7 billion a year ago.
Global Wealth & Investment Management
Global Wealth & Investment Management recorded higher quarterly revenues of $5.51 billion, compared with $1.99 billion a year earlier. The increase in revenue was primarily due to the Merrill Lynch acquisition and the gain related to the BlackRock equity interest. Fourth-quarter net income increased $816 million to $1.3 billion on the back of the revenue growth.
All Other
All Other posted revenues of negative $2.87 billion, in comparison with negative $1.44 billion in the fourth quarter of 2008.
FY09 Highlights For fiscal 2009, the bank reported a net income of $6.28 billion, up from $4.01 billion a year ago. Including preferred stock dividends and the negative impact from the repayment of TARP, net loss applicable to common shareholders was $2.20 billion, or $0.29 per share, compared with a profit of $2.56 billion or $0.54 per share in fiscal 2008. Full-year revenue net of interest expense totaled $119.64 billion, a sharp rise from $72.78 billion last year.
Wall Street analysts projected fiscal 2009 loss of $0.10 per share on revenues of $120.96 billion.
Competitors
Among others in the sector, Citigroup Inc. (C) reported a narrower net loss for the fourth quarter of fiscal 2009. However, the nation's third largest bank's loss widened sequentially as it repaid a portion of the money it owed to the government. Citigroup had received $45 billion in bailout funds from the TARP and made a partial repayment of $20 billion late last month.
Citi's fourth-quarter net loss narrowed to $7.579 billion from $17.263 billion in the prior year. Net loss available to common shareholders was $7.766 billion, compared to $18.162 billion last year. On a per share basis, the company's net loss reached $0.33, narrower than $3.40 in the same period last year. Total revenues, net of interest expense, were $5.405 billion, down from last year's $5.646 billion.
Another peer, JPMorgan Chase & Co. (JPM) has posted a four-fold rise in fourth-quarter profit, reflecting strong results from its Investment Bank and Asset Management businesses. Net income was $3.28 billion or $0.74 per share, compared with $702 million or $0.06 per share a year ago. The New York-based bank's quarterly revenues of $23.16 billion were up more than 30% from last year.
Going forward, JPMorgan, which proved to be a stable bank in the stress test conducted on 19 big banks earlier this year, has stated that it remains cautious due to weak employment, higher consumer credit costs and pressure on housing prices.
Major Events
Last month, Bank of America repaid the $45 billion of the U.S. taxpayers' preferred stock investment in the company as part of the TARP. Repayment followed the successful completion of a securities offering.
The bank agreed to sell the long-term asset management business of Columbia Management to Ameriprise Financial, Inc. The company also agreed to sell First Republic Bank to a number of investors, including investment funds managed by Colony Capital, LLC and General Atlantic LLC, led by First Republic's existing management. Both sales are expected to close in the second quarter of 2010.
Bank of America recently announced the appointment of Brian Moynihan, head of the bank's consumer and small-business units, as Chief Executive Officer and President of the company. He succeeds Kenneth Lewis, who retired from the company on December 31, 2009 after a 40-year career.
On January 12, subsequent to the appointment of Moynihan as Chief Executive Officer, the bank announced a radical reshuffle in its management. The bank said it has initiated a search for a new Chief Financial Officer to replace Joe Price, who will become President of the consumer, small business and card banking segment. Price will continue as Chief Financial Officer until February 1, and after that, Neil Cotty, Chief Accounting Officer, will serve as interim Chief Financial Officer until a new Chief Financial Officer is appointed. The bank also named Bruce Thompson Chief Risk Officer.
Outlook
Going forward, Moynihan stated, "As we look at 2010, we are encouraged by signs the economy is improving, as we have seen in the stabilization of our credit costs, particularly in the consumer businesses. That said, economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth."
BAC is currently trading at $16.57, up $0.25 or 1.53%, on a volume of 165.47 million shares. For the 52-week period, the bank's shares traded in a range of $2.53 - $19.10.
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