Bank of America Corp. closed out the turbulent 2011 year with better-than-expected revenue in the final three months, driving the bank to a fourth-quarter profit compared with the prior year's loss.
The quarter, however, was full of one-time charges and gains from asset sales and mortgage issues, showing the nation's second-biggest bank by assets is still battling the past just as much as it is looking to position itself for the future. The moves provided a net boost to pre-tax earnings and the bank's much-watched capital levels. And with some top-line strength, investors were cheered. Shares jumped 6.5% to $7.25 in premarket trading.
"We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company," said Chief Executive Officer Brian Moynihan.
In the latest quarter, asset sales included a sizable chunk of China Construction Bank Corp. and the close on its sale of some Canadian credit-card operations, among other moves. Such aggressive selling of assets was responsible last year for Bank of America's loss of its title of nation's largest bank by assets to peer JPMorgan Chase & Co.
The items helped Bank of America post a profit of $1.99 billion, or 15 cents on a per-share basis, compared to the prior-year loss of $2.24 billion, or 16 cents. Analysts surveyed by Thomson Reuters expected a per-share profit of 15 cents.
Among the one-time items were a $2.9 billion gain from the sale of CCB shares; a $1.2 billion gain from a massive exchange of debt; another $1.5 billion in litigation expenses for mortgages and $300 million set aside to repurchase flawed mortgages from security pools.
Total revenue improved 11% to $24.89 billion, topping the $24.08 billion analysts expected.
Large revenue increases from the prior year were seen in the bank's consumer real-estate segment, a figure boosted by the steep drop-off in mortgage-repurchase reserves compared to the prior year. The unit, which originates new mortgages as well as winding down the portfolio of delinquent loans, saw originations fall steeply but was also able to increase the value it ascribes to its mortgage-servicing rights, boosting the bottom line. Bank of America has moved thousands of employees from originating to servicing troubled loans, a move that contributed to the 78% drop in first-mortgage creation at the unit.
Meanwhile, the investment bank unit fell to a loss in the quarter as profits from trading plunged 73% from the prior year and investment banking fees fell 34%. The unit's revenue, including the trading figure, was dragged down by an accounting decision tied to the value of the bank's outstanding debt. Because the debt trading in the market became more expensive, the bank had to reduce its revenue, reversing a move made in the third-quarter that boosted the revenue.
The deposits unit, where the sprawling retail bank is held, swung to a profit from the prior-year as deposits rose 1.6%, service charges collected rose, and expenses were cut.
The bank is in the midst of a massive cost-cutting measure, dubbed Project New BAC, and managed to reduce total corporate expenses by $1.3 billion, or 6.4%, compared to the prior year.
Credit conditions at the bank continued to improve. Credit-loss provisions totaled $2.93 billion in the fourth quarter, compared with $5.13 billion a year earlier and $3.41 billion in the third quarter. Net charge-off rate was 1.74%, down from 2.87% and 2.17%, respectively.