Bank of America Fell on Earnings

123jump.com Staff
18 Oct, 2007
New York City

Bank of America reported third quarter revenue decline of 12% to $16.30 billion, earnings plunged 32% to $3.70 billion, and earnings per share declined 31% to 82 cents. The company reported loan loss reserve of $2.03 billion and trading losses of $1.4 billion hurt the earnings. Bank of America fell 3.5% after the earning report.

[R]10:00AM New York – Bank of America is the latest bank to report losses from mortgage lending and trading activities.[/R]

Bank of America Corporation today reported third quarter net income declined 32 percent to $3.70 billion from $5.42 billion a year earlier. Diluted earnings per share fell 31 percent to $0.82 from $1.18. Several analysts had expected earnings between $1.01 and $1.03 per share on revenue of $17.95 billion. Revenue and earnings decline was sharper than expected by analyst. The stock in the early trading fell 3.5%.

Investment banking fees declined $1.33 billion and provision for loan losses including losses related to home equity and residential mortgage loans were $865 million.

The diversified mix of the bank’s business helped bank to stay profitable in the quarter. Retail deposits increased 4% to $16.52 billion, first mortgage origination rose 27%, and loans and leases in business lending division increased 9% to $240 million. Total asset under management increased to $710 billion after the purchase of U.S. Trust.

Revenue net of interest expense on a fully taxable-equivalent basis declined 12 percent to $16.30 billion from $18.49 billion in the third quarter 2006.

Noninterest income fell 24 percent to $7.31 billion from $9.60 billion in the third quarter of 2006. The decrease was mainly due to trading account losses of $1.46 billion and the absence of a gain on the sale of the company's operations in Brazil recognized in the third quarter of last year. The decrease was partially offset by the absence of a $469 million loss on the sale of debt securities a year earlier and improvements in investment and brokerage services and equity investment income.

Provision for credit losses was $2.03 billion, up from $1.81 billion in the second quarter of 2007, and $1.17 billion in the third quarter of 2006. Net charge-offs were $1.57 billion, or 0.80 percent of total average loans and leases. This compared with $1.50 billion, or 0.81 percent, in the second quarter of 2007 and $1.28 billion, or 0.75 percent, in the third quarter of 2006.

Total shareholders' equity was $138.51 billion at September 30. Period-end assets were $1.6 trillion. The Tier 1 capital ratio was 8.22 percent, down from 8.52 percent at June 30, 2007 and 8.48 percent a year ago due to the impact of the U.S. Trust acquisition.

During the quarter, Bank of America paid a cash dividend of $0.64 per share. The company also issued 9.5 million common shares related to employee stock options and ownership plans and repurchased 9.6 million common shares. Period-ending common shares issued and outstanding were 4.44 billion for the third quarter of 2007, compared with 4.44 billion for the second quarter of 2007 and 4.50 billion for the third quarter of 2006.

The on-going U.S. housing market correction has hobbled some of the largest banks and brokerage companies in the world. Most banks had denied that they had exposure to subprime lending. In the last one month total of $25 billion losses related to mortgage securities have been declared by banks in the U.S., Europe, and Japan.

Bank of America ((BAC)) fell at the opening $2.00 to $48.02. In the last 52 weeks stock has traded between $46.52 and $55.08.


[R]6:00AM New York, 7:00PM Tokyo-Tokyo surges 0.89% on resurgent financial stocks. IMF lowered Japan’s economic growth rate to 2% in 2007 and to 1.7% in 2008.[/R]

In Tokyo trading Nikkei 225 rose 0.89% or 150.78 to 17, 106.09, while the broad Topix Index gained 1.67% to 1,610.94. Banks recovered on renewed optimism among investors despite steady stream of losses from the U.S. banks in the mortgage securities. Mizuho Financial increased 3.8%, Mitsubishi UFJ added 2.3%, and Nomura edged 1.5%.

Of the Nikkei 225 stocks 151 gained, 62 declined and 12 were unchanged. Sumitomo Chemical Company led advancers with a rise of 7.34%, followed by Hitachi Zosen climbing 5.38% on Indian stocks recovery. Financial stocks gained on easing concerns on losses associated to the global financial turmoil. Resona Holdings firmed 4.30%. Mitsubishi UFJ rose 2.26% and Mizuho Financial Group edged up 3.78%

In the first section of the Tokyo Stock Exchange 7.7 billion shares valued at 1.1 trillion yen were traded and in the second section 171 million shares valued at 4 billion yen were traded.

The International Monetary Fund yesterday downwardly revised Japan’s economic growth projection for 2007 by 0.6% to 2.1% due to the weaker-than-expected second quarter GDP growth for 2008. Japan’s GDP shrank to an annualized rate of 1.2% in the second quarter.

The Fund in its semi-annual World Economic Outlook report acknowledged that Japanese banks exposure to U.S. subprime mortgage crisis was much more limited than those in Europe, adding the Bank of Japan needs to maintain a “supportive” monetary policy framework to stave off deflation.

IMF said Japan needed strong fiscal adjustment to ensure sustainable decline in public debt and recommended broadening of the income tax base, raising the 5% consumption tax, strengthening tax administration, and advancing structural reforms.

Crude oil price retreated from $89 per barrel to trade at $87.57 per barrel after the weekly report on energy inventory showed a rise in levels in the U.S.

News reports said today Mitsubishi UFJ and Sumitomo Mitsui Financial Group and Credit Saison plan to bid for Japan Airlines credit card unit JAL Card Inc, which is, valued at 100 billion yen. Credit Saison will ally with Mizuho Financial Group in the bid open until the end of October. JAL to reduce its debt by 12% and become profitable is selling non-core assets including the credit card business.

Of the Nikkei 225 index shares, Sumitomo Chemical Company led gainers with a rise of 7.34% followed by gains in Hitachi Zosen of 5.38, in Kumagai Gumi Corp of 4.97%, in Kawasaki Heavy Industries of 4.94% and Asahi Glass Corp of 4.72%.

Of the Nikkei 225 Index stocks, Nippon Paper Group led the decliners with a fall of 3.52%, followed by losses of 2.98% in Sompo Japan Insurance, 2.65% in Konami Corp, 2.42% in Hokuetsu Paper and 2.41% in Millea Holdings.

Shipbuilders gained after the Indian government assured investors that it would not end trading in participatory notes use by hedge fund investors but will require investors to register with regulatory authorities. Kawasaki Heavy Industries rose 4.94%.

Kawasaki Heavy Industries also gained after reporting first half profit of 16 billion yen after the yen weakened against the dollar, averaging 119 yen per dollar over the covered period.

Elpida and other semiconductor stocks gained on Nikkei News reports that the company reported that the company will use 300 mm silicon wafer to produce DRAM chips by March next year. Advantest Corp rose 0.54%.

Mixi Inc. soared 15% to 1.35 million yen after reporting first-half net income of 950 million yen, up 150% from a year ago earnings of 440 million yen.

Retailers declined on the expectations of weak retail sales. Seven & I Holdings tumbled 2.21%, Takashimaya shed 0.47% and Mitsukoshi lost 0.19%.