Citing reductions in charge-offs and a rise in interchange revenue, Bank of America Corp.’s Global Card Services unit earned net income of $1.5 billion for the fourth quarter ended Dec. 30; it reported a $994 million loss during the same period last year, BofA reported on Jan. 21
The card unit’s revenue net of interest expense totaled $6.2 billion, down 12.7% from $7.1 billion. Noninterest card income totaled $2 billion, down 9.1% from $2.2 billion.
“We came into 2010 with a focus on continuing to clean up issues left over from the [economic] crisis while continuing to drive the franchise forward,” Brian Moynihan, BofA president and CEO, told analysts during a conference call to discuss the quarter’s earnings. “In the area of credit, our improvement has been strong. Charge-offs have now improved for seven consecutive quarters, and yet there is still room to improve.”
During the quarter, card revenue increased from the previous quarter primarily because of a 12% increase in interchange income, Chuck Noski, BofA chief financial officer, said during the call. Helping to drive that increase was a 4% rise in retail spending from the previous quarter and a 5% increase from a year earlier, he said.
Left unchanged, the Federal Reserve Board’s proposed 12-cent limit on debit card interchange will cost BofA about $1 billion in revenue in 2011, Noski said, noting he expects the impact of mitigation efforts to be fairly modest this year.
BofA’s credit card unit getting back on track is good, especially because banks have to deal with possible (debit card) interchange reductions,” Adil Moussa, an analyst at Boston-based Aite Group LLC, tells PaymentsSource.
It also is important that charge-offs are decreasing, Moussa notes. Many consumers are “no longer at the mercy of sudden job loss or bankruptcy,” he says. “This year, we should see the numbers going back to previous rates from 2006 and 2007.”
The credit card charge-off rate for the quarter was 8.24%, down 364 basis points from 11.88% during the same period in 2009. Total charge-off losses during the quarter were $2.9 billion, down 40.8% from $4.9 billion.
The provision for credit losses fell 69.1%, to $2.1 billion from $6.8 billion.
The percentage of loans 30 to 89 days delinquent was 5.15%, down 207 basis points from 7.22%; the percentage of loans 90 or more days delinquent was 2.77%, down 110 basis points from 3.87%.
The bank’s debit cardholders spent $60.9 billion during the quarter, up 6.5% from 57.2 billion a year earlier. Debit card spend rose because BofA may be taking an active role in limiting its losses and “making sure consumers are not charging everything onto their credit cards,” Moussa says, noting banks have been monitoring consumer spend and encouraging debit card use.
As a company, BofA reported a net loss of $1.2 billion. (Excluding a goodwill impairment charge of $2 billion in the Home Loans and Insurance unit, net income was $756 million.) BofA reported a net loss of $194 million during the same time last year. Total revenue net of interest expense was $22.4 billion, down 10.8% from $25.1 billion.
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