Shares of Bank of America Corp. slipped Monday as analysts and investors remained concerned about the banking companys asset quality and outlook, even though its third-quarter profits slightly exceeded expectations.
Bank of Americas per-share earnings, excluding charges, of $1.31 beat the First Call/Thomson Financial consensus estimate by a cent. However, its shares fell $1.375, or 2.95% to close at $45.0625, and the investment firm ING Barings downgraded the companys shares to hold from buy.
Ronald Mandle, a senior research analyst at Sanford Bernstein, said that, while the company reached its estimates, the way they got there gives you less confidence in the future numbers.
Bank of America and Northern Trust, whose per-share earnings of 53 cents matched estimates, had increases in nonperforming assets, he said.
Analysts said the fact that Bank of America took some equity investment gains to make up for other soft spots deflated the positive bottom-line news in the third-quarter report. The banks equity investment gains rose 24% from the year-earlier period, to $422 million, including venture capital gains of $224 million and strategic investment gains of $153 million. Revenue rose 3%, excluding the impact of lease residuals.
Stephen Biggar, a bank analyst at S&P Equity Group, said he would have preferred to see profit coming from operating fee-based businesses or traditional lending businesses.
The increase in nonperforming assets, which had been expected, also clouded the outlook. Bank of America said it did not expect a dramatic improvement soon.
James Hance, the companys chief financial officer, said during a conference with analysts and reporters that credit quality will continue to be an issue, and we expect nonperforming assets to increase over the next several quarters.
Shares of Northern Trust were unchanged at $75.375. Fifth Third Bancorp and Bank of New York Co. also hit their earnings estimates of 48 cents and 49 cents, respectively, while National City Corp.s earnings of 54 cents a share fell 1 cent below expectations.
The American Banker index of 225 banks rose 0.32%. The Standard & Poors 500 rose 0.03%, and the Nasdaq index fell 0.8%.
Chris Bamman, an analyst at Advest, said credit quality continues to be a concern, though the third-quarter news so far has been reasonably well.