Monday, July 18, 2011

Bank of America Corp. (NYSE: BAC): Q2 Earnings Preview 2011

Bank of America Corp. (NYSE: BAC), the largest US bank by assets, is scheduled to release its second-quarter earnings before the opening bell on Tuesday, July 19, 2011. Analysts, on average, expect the company to report a loss of 90 cents per share on revenue of $12.34 billion. In the year ago period, the company reported earnings of 27 cents per share on revenue of $29.15 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. The bank is greatly exposed to consumers with large residential mortgage, home equity, credit card, and consumer loan balances. Its commercial loan book is also large and depends on an improving economy. Bank of America’s acquisition of Merrill Lynch has also made it a significant player in the investment banking world.

In the preceding first quarter, the Charlotte, North Carolina-based bank's net income was $2.05 billion, or 17 cents per share, compared with a profit of $3.18 billion, or 28 cents a share, in the year-ago quarter. Revenue totaled $27.1 billion, down from $32.29 billion in the first quarter of 2010. Analysts, on average, expected the company to report earnings of 28 cents per share on revenue of $27.08 billion.

Improving business activity has helped banks reduce provisions for credit losses and improve margins on both credit cards and mortgages. Bank of America saw mixed results in 2010 with macroeconomic improvement that allowed the firm (as well as other banks) to reduce reserves for losses, bolstering profits. Banking industry has also benefited from continued credit improvement and return to positive loan growth. 

However, the company has been struggling to win back the confidence of shareholders. It's been a tough year so far for Bank of America stock, with shares skidding 22%. Investors have braced for a number of big financial hits connected with Bank of America's mortgage business. The bulk of the write-downs and losses are the result of Bank of America's 2008 acquisition of Countrywide Financial, a star-crossed deal that cost some $4 billion.

Chief Executive Officer Brian T. Moynihan has been rebuilding capital and has vowed to reduce risk in Bank of America’s holdings. He’s spent or earmarked at least $30 billion to quell losses ties to the company’s home lending and foreclosures. 

Bank of America has already announced more than $12 billion in settlements with various parties related to these "representations and warranties." Last month, the company agreed to pay $8.5 billion to settle claims by a group of high-profile investors burned by fraudulent mortgage securities. Bank of America also disclosed a $5.5 billion second-quarter provision tied to its exposure to government-run mortgage giants Fannie Mae and Freddie Mac. The bank also expects to record $6.4 billion in other mortgage-related charges in the period, including $2.6 billion to write off the balance of goodwill in the consumer real-estate services business. Excluding mortgage and other items, Bank of America expects earnings of 28 cents to 33 cents a share for the second quarter.

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