BofA Q3 Card Services Income Rises; CEO Defends $5 Debit Fee

Bank of America Corp. does not fear losing customers because of its controversial $5 monthly debit fee, Brian Moynihan, BofA chief executive officer, told analysts today.

Instead, he suggested the fee would be an incentive for more customers to expand relationships with the bank, including locating their various deposit, mortgage and credit card accounts there to receive a fee waiver.

In response to an analyst’s question during a conference call to discuss third-quarter earnings, Moynihan said that “a lot of people can qualify” to avoid the $5 fee if they concentrate most of their banking with BofA.

BofA announced its fee plans Sept. 29 (see story).

“The issue is when people split their relationship and use our convenience and our access and our 18,000 ATMs and our no foreign ATM fees and our online banking product and all that and yet have their relationship elsewhere,” he said. “That is tough for us to afford to provide, and we need to provide it to all our customers to be competitive.”

The new fee is designed to “get people to bring more of their relationships, so we are comfortable that we will end up in a good dynamic there,” Moynihan added.

Citing fewer credit cardholder defaults and a favorable comparison against a one-time $10.4 billion charge last year, BofA’s Card Services unit reported net income of $1.3 billion, which compares with a $9.84 billion loss during the same period a year ago.

Minus the one-time goodwill impairment charge taken during the third quarter of 2010, BofA’s net income during the quarter ended Sept. 30 more than doubled, increasing 118.9% from $594 million a year ago.

Net interest income declined 20%, to $2.8 billion from $3.5 billion, while income from fees fell 10.5%, to $1.7 billion from $1.9 billion.

Card Services revenue during the quarter fell 16.7%, to $4.5 billion from $5.4 billion, because of reductions in net interest income, total loans and fees, the company said.

Credit card purchase volume during the quarter rose 2.5%, to $48.5 billion from $47.3 billion, while debit card purchase volume rose 8.3%, to $62.8 billion from $58 billion.

BofA slashed its provision for credit card losses by 67.7%, to $1 billion from $3.1 billion, as consumer-account defaults declined. The average charge-off rate on credit card accounts during the quarter was 6.28%, down 396 basis points from 10.24% a year earlier. The early-stage delinquency rate for accounts at least 30 days past due fell 178 basis points, to 3.91% from 5.69%.

At the end of September, BofA held $122.2 billion in loans, down 11.8% from $138.5 billion a year earlier. The decline in receivables reflects fewer accounts in the portfolio after 12 months of charge-offs and the result of consumers repaying account balances at a higher rate compared with a year ago, the company said in a press release.

BofA added 851,000 new credit card accounts during the quarter, up 79.2% from 475,000 a year earlier.

Bruce Thompson, BofA chief financial officer, noted during the conference call that the issuer previously announced plans to sell its Canadian credit card business, and he expects that deal to close during the fourth quarter (see story).  BofA separately also has put its European credit card business, which is no longer classified with Card Services, on the block (see story).

Credit quality within BofA’s Card Services unit continues to improve, Thompson said. “Despite some of what we have seen out in the economy, we have continued to see very strong credit performance within our card services,” he said.

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