Bank of America EPS Misses Consensus Of $0.26, Comes At $0.17, Despite Credit Loss Provisions Plunging 72%

Tyler Durden's picture

Just as JP Morgan, Bank of America takes accounting manipulation to the next degree and lowers its credit loss provision to $3.8 billion, down $6.0 billion from a year earlier, and $2.3 billion from Q4, even though the actual amount of charge offs sequentially barely declined from $6.7 billion to $6.0 billion. "The provision for credit losses was $3.8 billion, which was $6.0 billion
lower than the same period a year earlier. The provision was lower than
net charge-offs, resulting in a $2.2 billion reduction in the allowance
for loan and lease losses, including the reserve for unfunded
commitments, in the first quarter of 2011 (net of reserve additions of
$1.6 billion related to consumer-purchased credit-impaired portfolios as
noted below). This compares with a $1.0 billion reduction in the first
quarter of 2010." Even so, the company still was unable to goal seek its EPS consensus of $0.26, coming in at $0.17. Without this accounting gimmick, BAC would have had a sizable loss in Q1.

In other news, Bank of America Corporation announced that the company, including its legacy Countrywide Financial Corporation affiliates, has reached an agreement with Assured Guaranty Ltd. and its subsidiaries to resolve all of the monoline insurer’s outstanding and potential repurchase claims related to alleged representations and warranties breaches involving 29 first- and second-lien residential mortgage-backed securitization (RMBS) trusts where Assured provided financial guarantee insurance. The agreement also resolves historical loan servicing issues and other potential liabilities with respect to these trusts. Great: that only means the company has about a trillion in monoline mortgage exposure that is still on the hook for lawsuits.

Selected highlights from the press release:

First-Quarter 2011 Financial Highlights

  • U.S. credit card performance metrics continued to improve in the first
    quarter, with 30+ day delinquency rates near all-time lows, net losses
    declining for the sixth straight quarter, and customer payment rates
    improving for the seventh straight quarter.
  • Average deposit balances were above $1 trillion, gaining 4 percent
    from the year-ago period and 2 percent from the fourth quarter of 2010.
  • Tangible book value1 per share rose to $13.21 in the first
    quarter of 2011, up from $12.98 at the end of 2010 and $11.70 in the
    first quarter of 2010.
  • The company continued to strengthen the balance sheet with
    risk-weighted assets declining $23 billion and global excess liquidity
    increasing $50 billion from the end of 2010 to $386 billion at March
    31, 2011.
  • Regulatory capital ratios remained strong with the Tier 1 common ratio
    at 8.64 percent at March 31, 2011, compared to 8.60 percent at
    December 31, 2010, and 7.60 percent at March 31, 2010. The increase
    from the fourth quarter of 2010 was largely due to higher retained
    earnings and a reduction in risk-weighted assets, partially offset by
    an increase in the company’s disallowed deferred tax asset (27 basis
    points of Tier 1 common). The tangible common equity ratio1
    rose to 6.10 percent at March 31, 2011 from 5.99 percent at December
    31, 2010 and 5.22 percent at March 31, 2010.
  • The provision for credit losses declined 61 percent from the year-ago
    quarter as net charge-offs fell for the fourth consecutive quarter,
    reflecting improved credit quality across most consumer and commercial
  • The allowance for loan and lease losses to annualized net charge-off
    coverage ratio improved in the first quarter of 2011 to 1.63 times,
    compared with 1.56 times in the fourth quarter of 2010 and 1.07 times
    in the first quarter of 2010.

1 Tangible book value per share of common stock and the
tangible common equity ratio are non-GAAP measures. Other companies may
define or calculate this measure differently. For reconciliation to GAAP
measures, refer to page 21 of this press release.

First-Quarter Business Highlights

  • The Deposits segment returned to profitability in the first quarter of
    2011. Average deposit balances grew $5 billion, or 1 percent, from the
    fourth quarter of 2010, and the number of net new accounts rose as the
    business continued to focus on quality sales and retention of customer
  • Global Commercial Banking saw loan growth of 2 percent in its core
    middle-market segment, compared to the fourth quarter of 2010, and
    continued to support small and medium-sized businesses. Combined with
    the large corporate group, the company made $69 billion in
    non-commercial real estate loans and $7 billion in commercial real
    estate loans including renewals in the first quarter of 2011.
  • Bank of America continued to support the economic recovery by
    extending approximately $144 billion in credit in the first quarter of
    2011, according to preliminary data. In addition to the numbers
    reported above, credit extensions included $57 billion in first
    mortgages, $4 billion in U.S. consumer and small business card, $2
    billion in home equity products and $5 billion in other consumer
  • Global Wealth and Investment Management (GWIM) reported one of its
    strongest quarters since the acquisition of Merrill Lynch, setting
    records for revenue, asset management fees and brokerage income. In
    addition, the business more than doubled long-term asset management
    flows and added 184 financial advisors since the end of 2010 through a
    combination of new hires and high advisor retention rates.
  • Bank of America Merrill Lynch (BAML) ranked No. 2 in both
    global and U.S. investment banking fees for the first quarter of 2011
    with a market share of 7.9 percent and 12.3 percent, respectively,
    according to Dealogic. The global market share improved by 1.6
    percentage points from the fourth quarter of 2010 and was the largest
    increase among the top 15 banks, according to Dealogic.
  • BAML gained market share in global and U.S. fee pools compared to the
    fourth quarter of 2010 and ranked in the top three globally in
    Leveraged Loans, Asset and Mortgage-Backed Securities, Investment
    Grade Corporate Debt, Syndicated Loans, High-Yield Corporate Debt and
    Common Stock Underwriting.
  • The $57 billion in first mortgages funded in the first quarter helped
    nearly 260,000 homeowners either purchase a home or refinance an
    existing mortgage. This included approximately 12,000 first-time
    homebuyer credit-qualified mortgages originated by our retail channels
    and more than 86,000 mortgages to low- and moderate-income borrowers.
    Approximately 31 percent of funded first mortgages were for home
    purchases and 69 percent were refinances.
  • Since the start of 2008, Bank of America and previously Countrywide
    have completed 840,000 loan modifications with customers. During the
    first quarter, more than 64,000 loan modifications were completed, a
    17 percent decrease from the total modifications in the first quarter
    of 2010.

Full earnings presentation:


BofA Earnings

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westboundnup's picture

I thought BOA was DOA?

Boilermaker's picture

futures went down a fraction of a percent momentarily...then rebounded.

AN0NYM0US's picture

a holes on Bloomberg Radio,  they always talk estimates when there is a meet or beat but just now reported that BofA had its first profitable quarter in three  neglecting to mention the miss

The Axe's picture

stock will probably go up....ha ha    its crazy...

Quinvarius's picture

BOA needs to hire JPM's accountants.

Savonarola's picture

Goldilocks... King Dollar... Free Market Capitalism... Nothing seems to work Larry. 


pendragon's picture

Brian Moynihan's lips are moving so he must be lying

Urban Redneck's picture

"Paging Dr. FASB, the efficacy of the drug is failing and the patient is going into EPS shock."

The Axe's picture

Its all GOOD news.....Only the raping skillsof Merrill Lynch Pierce Smith traders keep this POS alive....

Dick Darlington's picture

Bank of Scamerica, why don't You just default. The world would be a bit better place if u were gone.

I am more equal than others's picture

liar, liar, pants on fire.....

Whomever is doing credit analysis and reducing the provisions for credit loss is an idiot.  Probable changes in interest rates alone will wipe out those slightly better than marginal CRE loans who've endured thus far.  That ticking you hear is the time debt bomb.

drswhaley's picture

48 page slide deck to explain your earnings - the length of the letter from the CEO in the annual report has been found to correlate with the health of the company - if it gets longer things are bad.  I would say this along with the CFO being "promoted" to vice chairman after he was not consulted/aware of the fact that BofA would not be able to raise their dividend per their master, the federal government.

I think that BofA would like to think of theselves as being able to cross sell all their different products as a value add for their customer - I think they are trying to get more people on the hook before they break-up this train wreck into individual parts.

If you look at Moynihan prior to and after his ascension to CEO, he does not look healthy and that is related to what the captain is hearing about the condition of his ship.

Seasmoke's picture

i wonder how Ken Lewis is doing .......hopefully not well

Seasmoke's picture

all time lows on CC delinquent payments ......i still have a hard time getting my head around that people are paying the CC and not the mortgage......when TSHTF there is no way people are going to pay those CC bills

Racer's picture

Ah look they fiddled the figures, means they are a buy and the market likes con games

r101958's picture

One of the biggest banks in America doesn't meet expectations..........and the market is up. Naaaah, there is no intervention going on.

BKGuy's picture

People pay the CC's for two main reasons:

1. They can re-access the credit line later on and don't want to be cut off.

2. BAC's not going to foreclose for a couple years if you stop making payments, so who cares?

eureka's picture

The convenience of denial; U.S. citizens continue

depositing dollars into BAC, thus supporting TBTF

and, thank the devil, U.S. empire.


Eyes on the World's picture

If anyone is still reading this post, I've written a piece over at my blog on this very topic whilst including a link back here.  I'm a newbie in the whole game and a new writer that's attempting to put down in words with humor what the hell is going on in a manner and language "regular folks" can understand.  I would appreciate any reads on it and my blog in general - not trying to promote, just looking for opinions.  Thanks, EOTW