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Do Bank of America's Blowout Earnings Actually Blow?
In continuing my rant on why the mainstream media cannot charge for
content, combined with the still deteriorating situation of many banks
in the US and Europe, I release to subscribers the Bank of America
Q1-2010 earnings opinion: 
BAC Q1 2010 Earnings Review, which is
considerably less rosy than I have been reading in the mainstream media.
To get up to speed on the MSM/blog rant, I suggest you read “Are Blogs Truly Competitive With the Mainstream
Media in Terms of Quality of Content?”
For those who do not subscribe, here are some key excerpts:
Bank of America’s 1Q10 results are a
reflection of the continued weakness in the commercial banking space.
While the core operations’ revenues remained weak, the increase in
trading profits and the consolidation of the securitized assets (due to
FAS 166/167) made up for declines in revenue from the core portfolio and
operations.
Total reported net revenue in 1Q10
increased by nearly $7.0 billion or 27% (q-o-q) to $32 billion from $25
billion in 4Q09, resulting from the aforementioned increase in trading
profits by $3.7 billion, net interest income by $2.2 billion, other
income by $3.0 billion and card revenues by $194 million. Other income
was higher owing to fair value option impact on Merrill Lynch structured
notes (the highly suspect, level 3 asset, non-market price based
opinion of management) which resulted in 1Q10 gain of $226 million
against loss of $1.6 billion in 4Q09 as well as minimal write downs on
legacy assets (again, the highly suspect, formula driven opinion of
management) against write-down of $1.0 billion in 4Q09. Although it
shouldn’t be necessary, I will still state that gains in these areas
during an era of highly suspect asset values should be viewed with a
very jaded eye. Other non-interest revenue including service charges,
mortgage banking revenue, brokerage and investment banking revenues were
mostly lower than the 4Q09 levels largely owing to reduced transactions
or activity.
FAS 166/167 resulted in
consolidation of nearly $100 billion of securitized loans which
considerably boosted net interest income and card income.
While the reported core net interest income (on FTE basis) and
the card revenues recorded a q-o-q increase of 18.3% and 10.9%
respectively, on a managed basis, which excludes the impact of
consolidation of securitized assets, the net interest income and card
revenues recorded a negative growth of 2.1% and 8.6%, respectively.
The net interest income decline was largely owing to lower net interest
yield which declined to 3.69% from 3.74% in 4Q09 and the card revenues
declined owing to seasonality and lower fees associated with
implementation of CARD Act. However, the consolidation led to increase
in leverage with tangible common equity ratio coming down to 5.24% in
1Q10 from 5.57% in 4Q09.
Looking at the credit quality of the loan portfolio, there was no
substantial improvement. The total non-performing loans remained at
elevated levels largely owing to additions from residential mortgage
space. The annualized net charge-off rates for credit card loans
increased to 12.0% from 11.9% in 4Q09 and the annualized net charge-off
rates for home equity increased to 6.4% from 4.1% in 4Q09. The
charge-off rate for residential loans came down to 1.8% from 2.1% in
4Q09.
Here’s another tidbit that you haven’t heard in the mainstream…
The reduction in provisioning reduced the
allowance for loan losses. While the reported allowance for loan losses
increased by $9.6 billion or 26% to $46.8 billion from $37.2 billion in
4Q09, the increase was largely resulting from $11.0 billion addition to
allowance due to consolidation of securitized assets. Since the
consolidated securitized assets largely included credit card
receivables, consolidation of which led to an increase in allowance for
loan losses and only marginal addition to non performing assets, we
computed the following figures after adjusting for the impact of FAS
166/167. Non performing assets as % of total allowance for loan losses
inched higher to 100.3% from 96.1% in 4Q09.
Look far and wide to see if you
can find the extent of underprovisioning at BofA in the Mainstream
media!
I would like to hear from readers who follow the big financial rags,
ex. WSJ, Bloomberg, Financial Times, CNBC, etc. to see if this tidbit
was covered, or even mentioned. Of course, by mere coincidence, JP Morgan produced accounting earnings in a very similar manner. I call it the FDIC insured hedge fund with a large, money-losing commercial bank as a subsidiary. See An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less
Roses Than the Maintream Media Presents
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Reggie,
The real trick here (or closest thing to the real story) is what their portfolio EL or expected losses are now, relative to the past ten quarters??? (I don't know the answer.)
The Fed and OCC will see the 12/31/09 numbers on April 30, when the U.S. core banks turn in their Basel II, Comprehensive QIS Studies. The market will not see it.
In any event, the under-provisioning now is just classic "earnings management," while using everybody's favorite "steep yield curve" phrase to "earn their way out" of balance sheet Hades.
Yeah, yeah, yeah...the phonograph keeps playing the broken record.
Where's the "change," we were told would come if a certain somebody was elected as POTUS???
Q1 is turning out to be, report good news or else.
Without any regards to misinformation, or hidden one time whatevers. You have to look better than the rest in your segment at all costs, no matter what the impact in Q2. Its rosy or bust, literally. You have to be a leader if equities start to approach proper multiples.
There must be justification for the increase in equity price, and if theres not, make one up. You see this at GM and Chrysler (no they are not publicly traded, but they sure spin what they can) about how they can look "GREAT" to the media munchkins. Pure shell game PR. But, really it is their only hope to regain market share, and isn't it interesting that Toyota is on a down note and paying huge fines.
Mark Beck
Can imagine it will only get a lot worse before it gets any better.
How long can they mark to myth? Are they going to appreciate the mythological valuations each year without reference to market?
Well, that depends if you mark their so called "assets" to market, and take into consideration all the crap they hiding off balance sheet.
Reggie,
This is the first time i read one of your contributions to ZH, and i have to say well done decomposing the F/S into the relevant parts. Especially looking at parts most MSM won't even glimpse at, because all theyre interested in is shit you learn in accounting 101 (EPS higher qoq? good!)
We can only assume if BAC consolidated everything it held off B/S (SPEs and all), the picture would be much much grimmer.
And your last graphic paints the clearest picture of all, if i was performing due diligence here, i would not be impressed. Almost all have changed for the worse. And the loan, which increased roughly 8%, is matched with a 26% allowance! Ya, talk about being conservative...
While ive come to realize decent conversation is getting rarer on the issues posted at hand in TDs main posts (only because theyre swamped by either spammers or 2012 maniacs), ill look forward to reading more of your analyses.
This is one hell of a racket...the house next door to me is abandoned (3000 sqft on 1.5 acres) and BOA has yet to forclose after 2 years without payments...they didnt help the owner renegotiate, so she left near 18 months ago...then a 2nd floor pipe broke 6 months and collaped the drywall ceilings and warped the hardwood floors...now the grass is a foot high....
1) any suggestions
2) how many other loans like this are they carrying at full value??
the house has to be a total loss at this point...
Simpe:
Find the owner and get them to sign over a $0 consideration deed to you, a property management contract and also a sales contract to buy it for $195,000. Then rent out the property and use the proceeds for legal fees to negotiate the short sales which will take another 2 years.
Sorry Reggie. I thought you were mainstream and the stuff put out by bloomberg, wsj, cnbc were just the sounds of crickets harmonizing.
The BIG lesson in this entire crisis is in understanding the relativity of truth. Truth is what works for TPTB. Always has been, always will be. It's just how being humans operate.
Why would anyone bother to believe anything published in any bank's financial statements? Remember AIG was a Aaa until the last week or so.
Exactly. Now everything is valued exactly as you want to value it and most is off-balance sheet. I have to just laugh - it is so fraudulent and wrong that it is funny. They know it. We know it. MSM knows it but won't say it.
Why would anyone have reason to believe anything published in any company's financial statements? Sarbannes-Oxley notwithstanding.
Soooooooooooooooooo, you are saying BAC is a buy, right?
clearly it has everything for a rally to 25$!
AT LEAST!!