A Miracle At Bank Of America (BAC)

Ken Lewis will be CEO of Bank of America (BAC) forever. Even after being forced into a horrible deal to buy Merrill Lynch by former Treasury chief Paulson. the firm managed to post remarkable Q2 results.

The bank  reported second-quarter 2009 net income of $3.2 billion. After deducting preferred dividends of $805 million, including $713 million paid to the U.S. government, diluted earnings per share were $.33. That compared with net income of $3.4 billion, or diluted earnings per share of $0.72 during the year-ago period.

Bank of America increased its Tier 1 common capital by nearly $40 billion through multiple actions during the quarter that included issuing shares of common stock, exchanging certain non-government preferred stock for common stock, and asset sales.

Sales and trading revenue, excluding credit valuation adjustments on derivative liabilities and market disruption charges, rose to a record $6.7 billion.

The firm did indicate that credit quality continued to drop, a potential Achilles heel going forward. The provision for credit losses was $13.4 billion, flat with the first quarter. Credit losses were higher than the prior quarter and reserves, which were increased by $4.7 billion, were added across most consumer portfolios and the commercial portfolio reflecting the impact of the weak economy. Nonperforming assets were $31.0 billion compared with $25.6 billion at March 31, 2009, reflecting the continued deterioration in economic conditions.

Douglas A. McIntyre