Earnings Comments On Bank Of America

Apr.17.14 | About: Bank of (BAC)

Summary

Bank of America posts a loss for the first quarter.

Legal expenses of $6.0 billion reported.

In general operating performance is improving, held back by declines in trading fees and loan mortgage originations.

The number one job of Brian Moynihan, Chief Executive Officer of Bank of America Corp. (NYSE:BAC), is to get the past behind him.

"Under Mr. Moynihan, BofA has focused on putting its large legal settlements behind it as it tries to remover litigation uncertainty for investors," writes Camilla Hall in the Financial Times. Mr. Moynihan inherited most of these "litigation" problems when he took over his current role.

Otherwise, Bank of America seems to be moving in the right direction.

The bank reported a net loss for the quarter of $276 million, down from a net profit one year ago of $1.5 billion. The loss amounted to $0.05 per share. The bank indicated that if the litigation costs were excluded the earning per share for the first quarter would have been around $0.35 per share.

Without the one-time adjustments, bank total revenue fell to $22.8 billion in the first quarter of 2014 down 4.0 percent from the same period one year ago.

Much of the problem in the operating area is similar to that of the other large banks. For example, income from fixed income, currencies, and commodities trading fell 2.0 percent from a year ago, but this was a smaller decline than that experienced by JPMorgan Chase (NYSE:JPM) whose trading fell by 21.0 percent and Citigroup (NYSE:C) whose trading declined by 18.0 percent.

Also, like the other large banks, Bank of America saw its mortgage originations fall in the quarter. Brian Thompson, the bank's Chief Financial Officer, emphasized that the bank was not lowering credit standards in order to build its portfolio. His explicitness seems to be a response to the news that Wells Fargo (NYSE:WFC) has lowered the credit scores it requires on some of its consumer and mortgage lending requirements.

As with other large reporting banks, other categories of revenue were mixed in their results.

Attempts as expense control seem to be front and center as Bank of America said that the number of employees at the bank dropped by 9.0 percent from a year earlier.

The bank also reduced its release of reserves to cover bad loans by $425 million from a year ago to $379 million at the end of the first quarter of this year. Credit-loss provisions were only $1.0 billion this year compared with $1.7 billion in the first quarter one year ago.

In terms of the recent stress tests administered by the Federal Reserve, Bank of America performed adequately and the bank had its capital plans approved, which included obtaining the OK to raise its dividend to $0.05 per share and to go ahead with a $4.0 billion share repurchase program.

Brian Moynihan became the President and Chief Executive Officer in January 2010, so he has been in the top position at the bank for a little more than four years. During the time he has been in this spot, the bank has not experienced the overall results it would have liked, yet the work Moynihan has accomplished seems to have the approval of the shareholders.

The bank itself seems to be coming along adequately. The problem, which the investors seem to accept, is that there are many severe hangovers from decisions made before he became CEO. Unfortunately, the hangovers do not seem to want to go away - Moynihan cannot get them behind him. Although a lot has been settled, the New York Times article cited above carries these ominous words concerning the bank's legal liabilities: "there are other large pending cases that could weigh on future earnings."

It does seem, however, that Mr. Moynihan has been allowed more time and understanding to write off the past than has Michael Corbat, CEO of Citigroup. For more on this, see my post.

Given what Bank of America has gone through in terms of litigation, it is truly remarkable to think of how badly some companies have been run and what trouble a company can get into if it moves too hastily to acquire other organizations, especially in government administered deals. But you have to live with what you have.

I am sure Moynihan would like to get all these litigation cases behind him and move on into the future. I am sure the shareholders would, too. I think that there are some sunny days ahead for Bank of America - we just must stay patient for that time to arrive.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.