At B of A, Credit Metrics Trump Earnings (BAC)

Bank of America Corporation (NYSE: BAC) is echoing the positive earnings of last week seen at other banking institutions.  The stock is indicated lower on the individual credit metrics and the likelihood of profit taking, but the earnings for the current environment are still very impressive when you consider the state of the economy from the financial markets turmoil just 7 weeks ago.

The company’s profit was $4.2 billion and its profit after preferred dividends including $402 million paid to the government was $0.44 EPS.  Revenue was $36.1 billion.  Thomson Reuters (First Call) had estimates at only $0.04 EPS and $27.13 billion in revenues.  The bank also noted that Merrill Lynch and Countrywide contributed some $3.7 billion to net income, at least outside of costs and items.

Tangible common equity ratio improved to 3.13%. It extended $183 billion in credit during the first quarter, but it added added $6.4 billion to loan loss reserves.

The reason there is profit taking, other than just a sell-the-news profit taking, is because the bank talks about weakening credit quality and pressure still in the system.  This should be no surprise at all in the current situation, but it is what it is.  Provisions for credit losses were $13.38 billion, more than double year-ago levels and up over 50% sequentially.  Net charge-offs came in at $6.942 billion with a net charge-off ratio of 2.85%.  The total managed net losses were $9.124 billion, and that ratio of net charge-offs was 3.4%.  Non-performing assets were $25.743 billion, or a ratio of 2.65%.  And the allowance for loan and lease losses was $29.048 billion, or a ratio of 3.00%.

The company’s global card services showed a decrease of close to 5% in revenues of $7.457 billion, but after the loss provisions and the non-interest expenses the loss was -$1.769 billion.

Again, this report is very impressive that the profit came in at this level.  But there is also the notion of weakening credit conditions that are likely to continue their descent.  Shares closed at $10.60 on Friday, and so far shares are down at $10.15 in early trading.

Jon C. Ogg
April 20, 2009