Tuesday, January 12, 2010

Bank of America Corporation (NYSE: BAC): Q4 Earnings Preview 2009

Bank of America Corporation (NYSE: BAC), the biggest US lender, is scheduled to release financial results for fourth quarter before the opening bell on Wednesday, January 20, 2010.. Analysts, on average, expect the company to report net loss of 51 cents a share on revenue of $27.19 billion. In the year ago quarter, the company reported a loss of 48 cents per share on revenue of $15.68 billion.

Bank of America Corporation, a financial holding company, provides a range of banking and nonbanking financial services and products in the United States and internationally.

There's no doubt that 2009 was a rough year for the banking giant. In October, the Charlotte, North Carolina-based bank reported that it swung to third-quarter net loss of $1.00 billion, compared to net income of $1.18 billion in the same quarter last year. Net loss applicable to common shareholders for the quarter was $.24 billion compared to net income of $704 million in the year-ago quarter. On a per-share basis, net loss was $0.26 compared to net earnings of $0.15 last year. The bank's total revenue, net of interest expense on a fully taxable-equivalent basis, rose 32% to $26.4 billion from $19.9 billion a year ago. Analysts, on average, expected the company to report a loss of $0.21 per share on revenue of $27.61 billion for the quarter.

The provision for credit losses was $11.7 billion at the end of the third quarter, compared to $6.45 billion a year ago. During a conference call with analysts, CEO Lewis said that although loan losses are expected to peak this year, they "will continue to remain high going into 2010" and additions to the loan-loss reserves "will likely continue at least through the fourth quarter."

The bank said that despite the loss in the period, it strengthened its reserves, capital position and liquidity through efficient balance sheet and capital management.

In December, the firm it repaid the U.S. Treasury a $45 billion it received from the government as part of the Troubled Asset Relief Program or TARP. Earlier, the company commenced an offer to sell 1.286 billion common equivalent securities that generated gross proceeds of around $19.29 billion. The offering was priced at $15.00 per common equivalent security and its proceeds, along with existing corporate funds, were used to repurchase all the preferred stock issued to the U.S. Department of the Treasury. The company also paid the government $190 million in accrued dividends on the repurchased preferred securities.

Recent capital actions, including asset sales and capital raising, is likely to strengthen its balance sheet even further.After the TARP repayment and these initiatives, the company's Tier 1 capital ratio would be 11.0%, pro forma based on the September 30, 2009 ratio of 12.5%. The Tier 1 common capital ratio would be 8.4%, pro forma based on the September 30, 2009 ratio of 7.3%.

Bank of America's exit from TARP also freed it of compensation restrictions the government imposed amid outcry over pay at banks. In order to retain top talent as well as mid level employees, the bank has decided to pay competitive bonuses. Early this month, A report published in the Wall Street Journal suggested that Bank of America Corp. investment bankers may get bonuses that are close to 2007 levels as the bank.

Last month, the bank named Brian Moynihan, head of the bank's consumer and small-business units, as chief executive officer and president of the company. He replaced Kenneth Lewis, who recently announced that he will retire from the company after a 40-year career on December 31, 2009.

The upcoming quarterly report is expected to reflect the strength of its investment banking division. Fees from Bank of America’s investment bank and capital markets businesses ranked second in 2009 among Wall Street firms, behind only New York-based JPMorgan Chase (NYSE: JPM). Early this month, CEO Moynihan said that the fees reflected the success of the Merrill Lynch takeover. However, despite several positive signs, the bank still faces a number of challenges, including coping with the sluggish economy and reining in credit losses. Moynihan has already said that the key to profitability for Bank of America will be clearing the "credit hurdle."

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 20.38. In terms of stock performance, Bank of America shares have gained 25 percent over the past year.

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