Bank of America, which agreed to a record $16.7 billion settlement of government mortgage probes in August, posted a surprise third-quarter profit as investment-banking revenue rose.
Net income was $168 million, down from $2.5 billion a year earlier, the Charlotte, N.C.-based bank said Wednesday in a news release. Adjusted earnings per share, which exclude an accounting gain, were 40 cents, beating the 32-cent average estimate of 14 analysts surveyed by Bloomberg. After preferred dividend payments, Bank of America had a loss of 1 cent per share.
Chief Executive Officer Brian T. Moynihan, 55, who was named chairman this month, has booked more than $70 billion in costs tied to his predecessor's takeovers of Countrywide Financial Corp. and Merrill Lynch & Co. He's said that the firm's underlying earnings power would become apparent once the litigation costs subsided.
"We saw solid customer and client activity and improved profitability in most of our businesses relative to the year-ago quarter," Moynihan said in the release.
Bank of America climbed 0.8% to $16.65 at 7:25 a.m. in New York. The shares advanced 6.1% this year through yesterday, the second-best performance in the 24-company KBW Bank Index, after Wells Fargo & Co.
Revenue slid 4.3% to $21.2 billion.
Profit rose at businesses overseen by Chief Operating Officer Thomas K. Montag, including a 24% increase in global banking to $1.41 billion, which includes investment banking.
Trading profit rose 21% to $641 million, excluding the impact of accounting charges and tax adjustments. That was driven by an 11% jump in fixed-income sales and trading revenue to $2.25 billion, fueled by currencies, mortgages and commodities trading, and a 5.9% increase in equities-trading revenue to $1.03 billion.
The bank's fixed-income revenue surpassed estimates of $2.03 billion from Macquarie Group Ltd.'s David Konrad and $1.9 billion from Wells Fargo's Matt Burnell.
Bank of America announced the latest settlement in August, saying it would pay $9.65 billion in cash and $7 billion in consumer relief. The Justice Department probe was the last major legal hurdle from the mortgage business, and "the rest of the stuff is pretty well done," Moynihan told analysts in May.
Countrywide has been blamed by regulators for using lax underwriting standards and predatory lending that fueled its rise to the biggest U.S. mortgage lender before its collapse and sale. Angelo Mozilo, who co-founded the company, may face a civil suit, people with knowledge of the matter said in August.
"The company will need to show improved operating margins and profitability" now that most of its litigation costs are behind it, said Pri de Silva, senior banking analyst at CreditSights Inc. in New York. "The market environment for trading was fairly positive in September."
Moynihan, who won permission this year to boost Bank of America's quarterly dividend to 5 cents a share, succeeded Charles "Chad" Holliday, 66, as chairman. Jack Bovender, 69, who joined the board in August 2012, was elected lead independent director.
In August, Thomas K. Montag became sole chief operating officer after sharing the role with David Darnell. Darnell, 61, will be vice chairman and continue to oversee global wealth and investment management, as well as business banking, Moynihan told employees.
JPMorgan Chase & Co., the biggest U.S. bank, said Tuesday that profit rebounded to $5.6 billion from a $380 million loss a year earlier. Wells Fargo, the biggest mortgage lender, reported a 2.7% increase in earnings to $5.73 billion. Citigroup Inc., the third-largest U.S. bank, posted a 6.6% increase to $3.44 billion.
Goldman Sachs Group Inc. and Morgan Stanley report later this week.