Bank of America operating profit tops expectations

Bank of America Corp (BAC.N) posted higher-than-expected quarterly operating profit as credit losses declined, the third big U.S. bank to beat Wall Street earnings estimates.

But some analysts questioned whether BofA, the largest U.S. bank by assets, could continue generating profits from cutting reserves for bad loans, without much growth in its core business.

"The decreasing risk provisions is something that we've seen happening at all banks. The question for BofA is whether it can continue that trend," said Heinz-Gerd Sonnenschein, strategist at Postbank in Bonn.

BofA joined JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) in besting analysts' projections for the third quarter. Goldman Sachs Group Inc (GS.N), the dominant U.S. investment bank, also posted better-than-expected results on Tuesday.

The BofA results came one day after the bank said it would partially lift a nationwide foreclosure halt begun October 9 amid a public outcry that lenders cut corners in the foreclosure process.

BofA shares rose 9 cents to $12.43 in premarket trade.

Excluding a non-cash goodwill charge, Charlotte, North Carolina-based BofA reported earnings of $3.1 billion, or 27 cents per share. Analysts had expected 16 cents per share, according to Thomson Reuters I/B/E/S.

Including a previously announced $10.4 billion goodwill charge for its card business, the bank had a net loss of $7.3 billion, or 77 cents per share, compared with a loss of $2.2 billion, or 26 cents a share, a year ago.

Revenue, net of interest expenses, was $26.9 billion, up 2.2 percent from a year earlier.

But some of the bank's key traditional profit drivers continued to decline.

Net interest income -- the money the bank earns from loan interest -- declined for the fourth straight quarter, to $12.7 billion, down 3 percent from the second quarter. In its presentation slides for analysts, BofA said it expects net interest income to continue to decline for the next several quarters, though the pace of the decline is expected to slow.

Total loans also continued to contract. The bank reported $933 billion in total loans on September 30, up 2 percent from a year earlier but down 2.4 percent from June 30.

The bank, like its peers, reported an improving credit outlook. Net charge-offs declined 24 percent from the second quarter to $7.2 billion, and its provision for credit losses was $5.4 billion, down by nearly half from a year earlier.

BofA released $1.8 billion in loan loss reserves during the third quarter, a 20 percent increase from the second quarter.

BofA announced the goodwill charge for its global card services unit during its second quarter earnings announcement. It cited a new law limiting the fees banks can charge for processing debit card transactions.

BofA projected it could lose between $1.8 billion and $2.3 billion in annual debit card revenue as a result of the law.

[Source: By Joe Rauch, Reuters, Charlote, North Carolina, 19Oct10]

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