DUI Attorney Matthews Bark of Casselberry - Bank of America’s Profit Gains, as Legal Costs Tumble

Source     :  WSJ
By            :  Peter Rudegeair and Christina Rexrode
Category  : DUI Attorney Matthews Bark of Casselberry

Bank of America’s Profit Gains, as Legal Costs Tumble

Bank of America Corp. on Tuesday reported its biggest annual profit in nearly a decade, a sign the second-largest U.S. bank might finally be putting some of its crisis-era troubles behind it. The bank’s 2015 profit was $15.89 billion, the best result since 2006, when the bank made more than $21 billion. The profit was also more than twice what Bank of America had reported in 2014, with much of the improvement related to a big drop in legal and regulatory fines. Annual revenue slipped 2%, and some analysts questioned how much the bank would be able to keep cutting costs, a key tenet of the bank’s strategy for the past several years, as a lever to higher earnings. Evercore ISI analyst Glenn Schorr called the financial results “mostly good enough.” Still, the price of the company’s shares was down in morning trading, even as that of other big banks rose. Fourth-quarter revenue was flat over the year in the consumer bank and the unit that includes the investment bank. Revenue in wealth management slipped 3.5%, and Morgan Stanley overtook Bank of America’s Merrill Lynch wealth management as the biggest by revenue for the quarter and the year. 

Trading revenue was a bright spot. While results were down from the third quarter, a theme common across the industry, trading revenue was up 11% from a year ago. In the quarter, profit was $3.34 billion, or 28 cents a share. That compares with $3.05 billion, or 25 cents a share in the same period of 2014. The company beat the 26 cents a share expected by analysts polled by Thomson Reuters. Adjusted revenue increased 4% to $19.76 billion, slightly less than the $19.82 billion that analysts had expected. Stocks at all U.S. banks, including Bank of America, were walloped Friday on concerns about their exposure to low oil prices and troubles in China. On a call with reporters on Tuesday, Chief Financial Officer Paul Donofrio said he wasn’t “in the best position to comment” about the stock market. “We’re very focused on running the business here and the markets are going to do what the markets are going to do,” said Mr. Donofrio, echoing his Citigroup counterpart’s comment on Friday that “the markets are what the markets are.” The earnings announced on Tuesday close the door on a year in which Chief Executive Brian Moynihan had hoped to demonstrate the bank’s earnings power in the absence of the large legal bills that had characterized much of his tenure. Although profit did improve, Bank of America endured a number of stumbles along the way, including a flubbed submission in the Federal Reserve’s annual stress test and a shareholder battle over whether Mr. Moynihan should remain chairman of the bank’s board. Mr. Moynihan ultimately survived both tests but now needs to prove he can knit the slow-and-steady consumer bank and the hard-charging investment bank into a single force that can work together to best serve customers.

On Tuesday’s call with analysts, bank executives fielded multiple questions about energy lending. Mr. Donofrio said the bank is being careful to work with creditworthy customers, and he pointed out that the $21.3 billion energy portfolio is only about 2% of the overall loan book. “We feel like we have a very good handle on our energy portfolio,” Mr. Donofrio said. “I’m not sending out any red flags.” Commercial loan defaults were up $75 million over the quarter, driven by losses in energy, and the bank set aside an extra $144 million mostly to prepare for potential future defaults in that portfolio. But Mr. Donofrio also pointed out that falling oil prices are good news for consumers, manufacturers and countries like India. “This isn’t all bad news,” Mr. Donofrio said. Debit and credit card spending was up 4% compared with a year ago. Mr. Moynihan noted such spending would have been up 5.7% if gas prices had remained stable, and he took that as a positive sign, nothing the money could one day be spent on other things. There were times during the quarter, however, when customers were eager to consume. Mr. Donofrio said spending on debit cards by the hit a record level of more than $1 billion on Christmas Eve. Quarterly trading revenue, excluding an accounting adjustment, rose 11% to $2.65 billion from $2.37 billion a year ago, though that quarter was one of the industry’s weakest in recent years. Compared with the third quarter, trading revenue fell 16%. Fourth-quarter expenses were down 2% compared with a year ago, with the bank cutting costs including marketing, telecommunications and about 10,000 jobs and 130 branches. For the year, expenses were down 24%, largely because the bank spent much less on litigation: $1.2 billion in 2015, compared with $16.4 billion the year before.

The bank’s expense-cutting goals were helped by the winding down of the unit that services troubled mortgages. Over the year, that business cut about 6,000 jobs. Even as the bank cuts costs, some analysts have questioned if Bank of America cutting the right costs. Analyst Jim Mitchell of Buckingham Research noted the bank’s efficiency ratio could be improved. Bank executives said they are working on it and that they needed to spend on new technology and new sales professionals. Bank of America’s large portfolio of U.S. mortgages and other U.S. loans makes it particularly dependent on rising interest rates, and Mr. Donofrio said that if rates weren’t so low, “this company would look totally different.” Several one-time items also hurt earnings, including a U.K. surcharge on banks and Bank of America’s decision to buy back some securities ahead of schedule. The price of BofA’s shares fell 5.9% in 2015, worse than the 1.6% drop in the KBW Nasdaq index of bank stocks. Since the start of 2016, the bank’s shares are down 16%, along with a broad market decline.

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