Bank of America Slides

Bank of America Slides as Net Income, Revenue Drop (Update1)

By David Mildenberg

July 16 (Bloomberg) -- Bank of America Corp., the largest U.S. lender, fell as much as 7 percent in New York trading after the company posted lower profit and revenue amid an economy that’s “muddling along.”

Second-quarter net income dropped 3 percent to $3.12 billion, or 28 cents a share before preferred dividends, from $3.22 billion, or 33 cents, in the same period a year earlier, according to a statement today from the Charlotte, North Carolina-based bank. Revenue declined 11 percent.

Chief Executive Officer Brian T. Moynihan, 50, said today the U.S. jobless rate is likely to remain high and the company is “about half-way back” in its recovery from credit losses. He’s rebuilding the bank’s image with consumers, Congress and regulators as he tries to reverse losses from credit cards and home loans.

“We’re in a period of muddling along with this economy and it going to take a few more quarters for you to see sustained activity,” Moynihan said in an interview on Bloomberg TV. “We’re sort of in a state of moving through the muck, and yet we’re moving in the right direction.”

Bank of America dropped $1, or 6.5 percent, to $14.39 at 10:08 a.m. in New York Stock Exchange composite trading and sold for as little as $14.31. While JPMorgan Chase & Co. has been repurchasing shares, Moynihan said it will be several quarters before Bank of America will do any buybacks.

Loan Provision

The bank earmarked $8.1 billion for credit losses, a 17 percent cut from 2010’s first quarter. JPMorgan Chase CEO Jamie Dimon discounted his bank’s $1.5 billion gain from cutting loan- loss reserves yesterday, saying it doesn’t represent “normal ongoing earnings.”

Profit in Bank of America’s second quarter of 2009 included a gain from equity investments, mainly proceeds from the sale of part of the lender’s stake in China Construction Bank.

Bank of America slid 20 percent during the second quarter on concern that another recession was imminent. The shares then rebounded 7.1 percent since June 30 to close at $15.39 yesterday on the New York Stock Exchange. JPMorgan Chase, the company’s biggest rival, gained 11 percent over the same span, and yesterday the New York-based bank reported a 76 percent increase in second-quarter profit.

Bank of America ranks first in the U.S. by deposits and assets, and second among credit-card and housing lenders. While the acquisition of Merrill Lynch last year bolstered the company’s corporate and investment-banking operations, about half of 2009 revenue was still tied to retail banking and consumer loans.

New Regulations

Moynihan has overhauled risk management and simplified statements, policies and overdraft fees that he said had bred ill will and stuck some customers with a “$35 cup of coffee.”

At the same time, banks are trying to make up for costs imposed by new regulations in the financial industry overhaul passed by the U.S. Senate yesterday. The new rules may cut Bank of America’s annual revenue by $1.9 billion, according to DBRS Inc., the Toronto-based ratings firm.

The company is introducing a checking account on Aug. 6 that imposes an $8.95 monthly fee if the customer wants to use a teller or receive a monthly statement through the mail.

Moynihan wants to change Bank of America’s image from “one of the banks that American retail banking customers most love to hate and most desire to leave,” analyst Nancy Bush of NAB Research LLC said in a July 6 report. “We know that this issue has the highest priority with bank management and its board.”

Fixed-Income

Revenue in fixed-income, currency and commodity trading declined to $2.32 billion, according to a supplement accompanying Bank of America’s earnings release, from a record $5.52 billion in the first quarter and $2.68 billion in 2009’s second quarter.

The bank’s card-services business swung to an $806 million profit from a $1.59 billion loss a year earlier, the supplement said. Overdue card loans fell in June to the lowest level since September 2008.

Home loans and insurance reported a $1.5 billion loss, compared with $726 million a year earlier, as defaults increased and the value of mortgage servicing rights declined. Loan originations increased 3.5 percent from the first quarter as borrowers sought government tax credits that expired on June 30.

“It is hard to build a bull case for Bank of America when the business is contracting at this rate, but this is typical throughout the U.S. banking industry,” Christopher Whalen of Institutional Risk Analytics, a Torrance, California-based research firm, said in a report today. The U.S. economy is “finding a new run-rate without the availability of excessive credit,” he wrote, adding, “Get used to it. For those of you who still believe in ‘normalized earnings,’ this is it.”