BofA’s Card Services Unit Posts Q1 Profit As Loans Stabilize

Citing increased consumer spending and improving economic conditions, Bank of America Corp.’s Global Card Services unit posted a sharp profit-increase during the first quarter ended March 31.

“Consumer spending continued to increase this quarter compared to last year, and in March it increased 7%,” Brian Moynihan, BofA president and CEO, told analysts during a April 15 conference call to discuss the quarter’s earnings. “About 1.5% of that (increase) would have been gas-price increase, while the rest is sort of fundamental customer purchases moving forward,” he explained.

Credit card purchase volume during the quarter rose 3.7% to $50.5 billion from $48.7 billion a year earlier.

Moynihan also noted the company continues to see strong borrowing trends in specific areas and loan stability is improving across the board. “Our affluent clients continue to take more risk in the market and we have seen growth in the area,” Moynihan said.

BofA also reported a 24.2% increase in new consumer credit card accounts during the quarter, notching 918,000 new cardholders compared with 739,000 new cardholders during the same period last year.

BofA’s cards unit earned $1.7 billion during the quarter, up 76.5% from $963 million during the same period last year (see story). The profit-uptick was largely due to an improvement in credit quality, Moynihan said. Revenue in that unit, however, continues to be slightly down as “we continue to run down the books of loans we don’t want in that business,” he added.

The company decided earlier this month that its small-business portfolio no longer fit with its consumer credit card business and sold the portfolio, which was managed by its subsidiary MBNA Europe Bank Ltd., to Barclays Bank PLC (see story).

A seasonal decline in interchange revenue and the ongoing effects of The Credit Card Accountability Responsibility and Disclosure Act also contributed to lower revenues during the quarter, Chuck Noski, BofA’s chief financial officer, said during the conference call. The company did, however, see net charge-offs decrease because of improving credit performance, Noski said.

“We expect loan-loss reserve reductions will continue as long as portfolio performance and the economy continue to improve and our other credit metrics warrant lower reserves,” Noski added.

BofA also announced that Bruce Thompson, chief risk officer, will succeed Noski as CFO by the end of the second quarter, and Noski will become vice chairman.

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