Bank Of America Beats On Lower Tax Rate, Higher Loss Reserve Release As Mortgage Originations Plunge 50%

Tyler Durden's picture


If yesterday it was JPM's turn to shock and awe everyone with its adoption of FVA and impress with its non-GAAP revenues, today it is the turn of Bank of America to confuse everyone with its traditionally indecipherable earnings release. So here is the punchline. BAC reported revenues of $21.7 billion which beat expectations of $21.14 billion, although more importantly EPS of $0.29 vs expectations of $0.27. So how did BAC generate the better than expected top and bottom line? Simple - the top line beat was driven by the bank's return to an aggressive extraction of non-income income from loan-loss reserve releases, which in the current quarter rose to $1.246 billion, up from $900 million a year ago. Considering the Bank had non-GAAP pretax income of $3.8 billion, this amount to just about a third of its earnings.


This was driven by the bank charging offsome $1.6 billion offset by just $0.3 billion in provisions.

This is what the bank had to say about its loan loss releases:

The provision for credit losses declined $1.9 billion from the fourth quarter of 2012 to $336 million, driven by improved credit quality. Net charge-offs declined significantly to $1.6 billion in the fourth quarter of 2013 from $3.1 billion in the fourth quarter of 2012, with the net charge-off ratio falling to 0.68 percent in the fourth quarter of 2013 from 1.40 percent in the year-ago quarter. The provision for credit losses in the fourth quarter of 2013 included a $1.2 billion reduction in the allowance for credit losses, compared to a $900 million reduction in the allowance in the fourth quarter of 2012.

Additionally, the company paid only $406 million in reported taxes on pretax income of $3.845 billion, or a 10.6% effective tax rate. How does this compare to the historic average of 25%? Obviously, it's much lower. In fact, if BAC had used its historic tax rate of 25%, the EPS "beat" of $0.29 would have become a $0.25 miss. But all is fair in sellside analyst love and making up non-GAAP numbers.

And finally, let's not forget the elephant in the room: litigation reserves: at $2.3 billion this was the biggest one-time item in recent years.

Ok, so BAC would have missed wildly if it hadn't dug into its bag of usual accounting tricks. But what about the organic business? Well, since banks traditionally make money not as hedge funds but as lenders, here is the bottom line: in Q4, just like with Wells, mortgage origination crumbled by a whopping 49%! This led to a $1.1 billion loss in the CRES group, a drop of $2.6 billion compared to a year ago.

As for how the bank's trading operation fare this quarter, the answer : flat to down.

Here is what BAC had to say:

Net income of $0.2B

  • Excluding DVA and U.K. tax charge, net income of $0.3B declined from both comparative periods as revenue improvement was offset by litigation expense

Excluding DVA, sales and trading revenue of $3.0B increased $483MM, or 19%, from 4Q12 and was consistent with 3Q13

  • FICC revenue increased $292MM, or 16%, from 4Q12 and $47MM, or 2%, from 3Q13 as stronger results in credit and mortgage products offset weakness in rates and commodities
  • Equities revenue increased $191MM, or 27%, from 4Q12 due to market share gains, higher market volumes and increased client financing balances, but declined 7% from strong 3Q13 results

Bottom line: virtually no change from a year ago.

Also of note. VaR declined from 100 a year ago to just 74.

Finally, as for how the bank sees its future, well: here are the bank's employees at different points in time. The trend is clear.

Full earnings presentation below:

Your rating: None

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Wed, 01/15/2014 - 09:13 | 4333640 new game
new game's picture

a great time to buy a home!

Wed, 01/15/2014 - 09:20 | 4333657 Headbanger
Headbanger's picture

So how many BofA employees get laid off this time?? 


Wed, 01/15/2014 - 10:32 | 4333790 El Oregonian
El Oregonian's picture

I thought we were having a great 'Recovery'... no? I mean those lying sacks (*cough*CNBC*cough*) plus all the usual shills... er, prognosticators say everything is "Looking up" and we're moving into "sunshine and lollipops"  //sarc off.

The 'economists' said that if clothing, gas, and food were not included into the mix for Holiday Sales numbers these would be depression-type numbers.

Wed, 01/15/2014 - 11:10 | 4333919 Stuck on Zero
Stuck on Zero's picture

We're having a great recovery according to CNBC:

Mortgage applications surge on lower rates


Wed, 01/15/2014 - 09:16 | 4333643 GrinandBearit
GrinandBearit's picture

Figures lie and liars figure.  

It's only a matter of time before reality catches up to all these bankster accounting shenanigans. 

Wed, 01/15/2014 - 10:14 | 4333786 caShOnlY
caShOnlY's picture

PHEW, I was getting worried there for a moment.  Good to see this bell weather financially healthy in these tough times.  The Mawket should roar with excitement!!

Wed, 01/15/2014 - 09:14 | 4333645 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

Creative accounting = cooking the books.  Is Al Capone their Chief Financial Officer?

Wed, 01/15/2014 - 09:16 | 4333648 Oh regional Indian
Oh regional Indian's picture

GAAP: Genetically Altered Accounting Principles...

GAAP: Helps close the gap (between black and red)

The world according to GAAP...



Wed, 01/15/2014 - 09:17 | 4333651 Dr. Engali
Dr. Engali's picture

I despise the fact that this criminal organization call itself the Bank of America. Their interests have nothing to do with America. Just like their is nothing federal about the Federal Reserve. They will sell their country out for a buck.

Wed, 01/15/2014 - 09:41 | 4333726 Winston Churchill
Winston Churchill's picture

2 cents Doc.

Wed, 01/15/2014 - 09:53 | 4333745 krispkritter
krispkritter's picture

Because 'Bank of Criminally Psychotic Muppet-raping Thieving Pricks and Jagoffs' didn't roll off the tongue as easily?  They tossed my old mortgage to a worse bag of dicks in Green Tree Financial.  Those guys made BoA look like Barney and Friends...

Wed, 01/15/2014 - 09:19 | 4333656 Manipuflation
Manipuflation's picture


Wed, 01/15/2014 - 09:21 | 4333658 q99x2
q99x2's picture

Isn't it time for banks to short themselves again.

Wed, 01/15/2014 - 09:23 | 4333664 Shizzmoney
Shizzmoney's picture

BOA has a better tax rate than I do

What a country

Wed, 01/15/2014 - 09:49 | 4333699 SillySalesmanQu...
SillySalesmanQuestion's picture

I for one, would like to shove something unpleasant into the the banksters GAAP...

Wed, 01/15/2014 - 09:38 | 4333711 Catullus
Catullus's picture

I'm trying to get a building loan right now... holy shit this is taking forever.


BTW, there's a 50bps spread between conforming and non-conforming loans.

Wed, 01/15/2014 - 09:41 | 4333724 LawsofPhysics
LawsofPhysics's picture

Can I book my losses as "assets" too?


Wed, 01/15/2014 - 09:50 | 4333742 BudFox2012
BudFox2012's picture

Well, maybe it's time BOA joins Chase in limiting wire transferrs and businesses transferring money out of their accounts.  Its not a capital control, its for the consumers protection.

Wed, 01/15/2014 - 10:22 | 4333801 Yardfarmer
Yardfarmer's picture

""the net effect-positioned well for 2014. record capital and liquidity levels." we've heard this tiresome theme drummed incessantly into largely empty heads and media echo chambers ad nauseam over the past five years, shortly after BOA became bona fide and mark to market insolvent and assumed the notable status of "zombie bank". a sort of Potemkin village and now only a stage set facade propped up by the girders and planks of artificial contructs of derivatives, interest rate swaps, CDOs etc. and artificially resuscitated by and bloated with FED monetary steroid jello, BOA along with its Pleiadian sisters of malivestment sew financial ruin with the government monolith in hideous and incestuous siamese union.  

Wed, 01/15/2014 - 10:39 | 4333840 CheapBastard
CheapBastard's picture

prob 40% foreign cash buyers are supporting this market right now...

Wed, 01/15/2014 - 11:09 | 4333916 Colonel Klink
Colonel Klink's picture

I don't understand how people still do business with Bankruptcy of America Muppet Looting.

Wed, 01/15/2014 - 11:25 | 4333968 wisefool
wisefool's picture

I read it here a couple of years ago. Not sure if in the comments or an actual Tyler post, but the going tax provision bribe rate for a US congressperson was like $20k. Senators needed on average $55k. If you are a corporation with a fiduciary duty to shareholders, you need to discover and utilize these "opportunities." With an 80,000+ page tax code, nobody will care.

Wed, 01/15/2014 - 11:28 | 4333977 starman
starman's picture

JPM WELLS FARGO are down 50-60% on mortgage landing respectively thus accounting for 39-60 billion in revenue losses for the fiscal year of 2013!
Ouch! Recover that!

Wed, 01/15/2014 - 11:34 | 4333986 Spungo
Spungo's picture

It's good to see that JPM is reducing its number of full time employees. That's how strong this recovery is. We don't even need workers! We just print money!

Wed, 01/15/2014 - 12:05 | 4334062 Obama_4_Dictator
Obama_4_Dictator's picture

I can not wait for this collapse - it is truly going to of epic proportions......BofA needs to cease to exist...even if I have 2 good friends that work for that "bank"....sorry guys.

Wed, 01/15/2014 - 12:50 | 4334232 El Hosel
El Hosel's picture

Down 50%? Hey, that's Half Full. Bullish.

Wed, 01/15/2014 - 13:06 | 4334290 tip e. canoe
tip e. canoe's picture

gotta love those loan loss reserve releases.
works like a charm every quarter...until it doesn't.

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