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Bank Of America Beats EPS Estimates, Misses Net Of One Time Items, Reports Could Be Underaccrued By Up To $5 Billion

Tyler Durden's picture




 

The just reported Bank of America top and bottom line numbers were better than expected, coming in at $24.89 billion compared to estimates of $24.5 billion, and EPS of $0.18 vs $0.15. The actual Net Income number number was $2.0 billion and $2.7 billion pre tax. So far so good. But a quick skim through the presentation (attached below), indicates that the $0.18 number may be grossly inflated. Because when one excludes the various selected one time items highlighted in the quarter, which are as follows: Gain on sale of CCB shares-$2.9; Gains on exchanges of trust preferred securities - $1.2; Gains on sales of debt securities - $1.2; Representations and warranties provision - ($0.3); DVA on trading liabilities- ($0.5); Goodwill impairment - ($0.6); Fair value adjustment on structured liabilities - ($0.8); Mortgage-related litigation expense ($1.5), all of which it appears are part of the pretax number, the final EPS comes in at a much less impressive $1.3 billion pre tax, which at the company's indicated tax rate, would have been $1.0 billion after tax, or $0.10 EPS, a notable miss. Which likely means that the Revenue "beat" on an apples to apples basis would also have to be pro forma'ing a bunch of items, and likely would be a miss. But for that we will need to go through the several hundred page 10-Q, something which management is hoping the machines which will send its stock much higher in the pre-market session, will never do. Another notable item is that for the first time in a long time, the company's average deposit balances declined by 1.2% in Q4 from Q3, from $422.3 billion to $417.1 billion (as the rate on deposits fell from 0.25% to 0.23%). Not a good trend, but certainly to be expected following the snafu with the company's electronic banking website last quarter. Also troubling is that in Q4, the company's Home Equity Non-Performing Assets increase for the first time in years, from $2.4 billion to $2.5 billion: it seems the improvement in housing has plateaued. Finally, and most troubling, is that BAC reported that "Estimated range of possible loss related to non-GSE representations and warranties exposure could be up to $5B over existing accruals at December 31, 2011." The reason: a surge in New Claims in Q4 "primarily related to repurchase requests received from trustees on private-label securitization transactions not included in the BNY Mellon settlement." Which means another $5 billion out of Net Income due to underreserving. Because how much did BAC provision for Reps and Warranties in Q4? Why a 'whopping' $263 million. And how much is the potential full notional value of underreserved contingent liabilities? Why $755 billion only.

Summarized as follows:

On the decline in the deposit base:

And why Reps and Warranties will soon be a major issue all over again, just like we predicted back in October 2010:

Spot the $755 billion in unreserved contingent liabilities.

Bloomberg summarizes the results as follows:

  • Bank of America 4Q oper EPS 15c with items, may not compare to 13c est.; rev. $25.15b may not compare to $25.50b est.
  • Global banking and markets net rev. $3.72b (inc. $474m DVA losses) vs $5.22b Q/q
  • Sales trading rev. $1.4b vs $2.8b Q/q
  • FICC rev ex-DVA $1.2b vs $314m Q/q, equity $660m vs $757m Q/q
  • I-banking fees $1.1b vs. $1.1b Q/q
  • Consumer real estate svcs. net rev. $3.28b, net loss ($1.5b) vs $2.82b/($1.14b) Q/q
  • Global card svcs. net rev. $4.1b vs $4.51b Q/q
  • Global commercial banking $2.56b vs. $2.53b Q/q
  • Wealth inv. mgmt. rev. $4.16b vs. $4.23b Q/q
  • 4Q provisions $2.93b vs. $3.41b Q/q, or 3.68% of loans vs 3.81% Q/q
  • Tang. BV-shr $12.95 vs $13.22 Q/q

Full earnings spin report here, and the presentation is below:

 

 

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Thu, 01/19/2012 - 08:39 | 2077375 qussl3
qussl3's picture

Bagholders.........

Calling all Bagholders......

Pls board the train, dont mind the crew.

Thu, 01/19/2012 - 09:03 | 2077382 Ruffcut
Ruffcut's picture

bagholders looking for that huge penny divy. Don't spend it all in the same place.

Ok, I hope you bitchez have more fun than me. I got deposed by two lawyers and going with another shitty progressive lawyer representing me,(my ass). Kid had a work truck accident, has his own insurance and now they want mine. They are paying me 6 bucks to testify as witness fee. It is just like the BAC divy, whippeeeeee.....

Thu, 01/19/2012 - 08:49 | 2077379 bob_dabolina
bob_dabolina's picture

And than there was the chinese guy who stole the Federal Reserve Bank of New York's code...in case he lost his job and had access to it

http://the-compass.org/2012/01/19/chinese-man-steals-feds-secret-sauce/

Thu, 01/19/2012 - 08:52 | 2077393 HD
HD's picture

I read that last night and was floored. A Chinese national for God sakes. Congress is worried about middle aged women downloading a "Desperate Housewives" they missed (low life stealing scum as Dodd calls them) and the Fed is paying China to spy on our financial system.

Not that it matters. The Fed software only had three lines of code anyway:

FED Code:

10 PRINT

20 PRINT MORE

30 GOTO 10

 

Thu, 01/19/2012 - 09:00 | 2077402 bob_dabolina
bob_dabolina's picture

I want that code.

I want all the cheat codes.

Thu, 01/19/2012 - 09:19 | 2077428 HD
HD's picture

I hear a programmer position just opened up at the Fed. On your application tell them your an Iranian national - that should move you to the head of the line for top secret clearance.

Even the Fed doesn't hire Americans.

Thu, 01/19/2012 - 09:16 | 2077421 falak pema
falak pema's picture

40  ZIRP to infinity.

50  Never take calls another central bank. Always call them. One message on repeat : Please print more. 

Thu, 01/19/2012 - 13:52 | 2078454 Tijuana Donkey Show
Tijuana Donkey Show's picture

You forgot 

5 IF TAXPAYER, THEN ASSRAPE

 

Thu, 01/19/2012 - 08:43 | 2077380 HD
HD's picture

Do Wall Street accountants wear top hats with rabbits in them? For anything is possible with the power of illusion.

Thu, 01/19/2012 - 08:43 | 2077381 SDRII
SDRII's picture

The option buyer of thew 7s was? BAC is prob being window dressed up for a capital raise post stress tests. Recall the WFC dividend raise into the short ban. Now if we only knew who was buying the spanish bonds?

Thu, 01/19/2012 - 08:45 | 2077384 Boilermaker
Boilermaker's picture

Why even bother with 'skimming' in the details?  It's completely irrelevant. 

The equity is going to get hammered upward without regard to any actual realities.  The same with MS today.

Seriosly, just accept your Overlords and move on.  They have full control of the market and will continue to.  If their magic carpet ride from $5 a share hasn't proven that to you then you're hopelessly delusional.

Thu, 01/19/2012 - 08:47 | 2077387 LongSoupLine
LongSoupLine's picture

It doesn't f'ing matter...CNBC is foaming at the mouth with this and MS "earnings", and is rolling every sell-side retard they can find through the morning suckerfest.  All that matters is the headlines for the momo HFT rampfest.  The big plan to sucker retail back in is in full-f'ing-retard mode, and that train is not stopping until it runs out of track at the cliff.

Thu, 01/19/2012 - 10:47 | 2077658 FMR Bankster
FMR Bankster's picture

The short bus crowd will be all over BAC. Of all the crappy financials BAC is by far the worst. Even more screwed up than C and that's saying something. Even if they didn't have massive contingent liabilities they would still be far too screwed up to compete.

Thu, 01/19/2012 - 08:49 | 2077388 digitlman
digitlman's picture

LMFAO:  CNN Money asks "Is trading dead?"

 

http://money.cnn.com/2012/01/19/markets/trading_volume/index.htm?iid=HP_LN

 

By humans?  Yes.  But the machines slave on!

Thu, 01/19/2012 - 09:02 | 2077406 Comay Mierda
Comay Mierda's picture

trading on fundamentals is dead.  trading on technicals is alive and well.  ignore the news, look at the charts, and ye shall make money

Thu, 01/19/2012 - 08:51 | 2077394 smlbizman
smlbizman's picture

i really have to question your accuracy zh.....the in the know bloomberg babe just told me with unbridled enthusiasm that these banks have gotten lean and mean and it is starting to show.....

Thu, 01/19/2012 - 08:55 | 2077398 OldPhart
OldPhart's picture

Of course BofA's liabilities look light.  They just vanished about $5 billion in loan loss reserves.  This from the King of Ninja loans.

Sell this turkey, it's done.  There ain't nothing left but removing the stuffing and slicing it up.

 

Thu, 01/19/2012 - 09:09 | 2077413 fonzannoon
fonzannoon's picture

The main thing I disagree with on this site is the idea that the average guy is out of the market. The average guy is foaming at the mouth to buy BAC at the open. Liky Tyler said no one is going to read through the 100 plus pages for any details and if they did by the time they were done no one would care anyway.

Get ready for a lot of Dickhead Bove today.

Thu, 01/19/2012 - 09:11 | 2077416 fonzannoon
fonzannoon's picture

So who bought those bonds this morning?

Thu, 01/19/2012 - 09:17 | 2077422 swani
swani's picture

Accounting fraud bitchez. 

Thu, 01/19/2012 - 09:30 | 2077430 Contra_Man
Contra_Man's picture

Earnings Quality - All Sing:  "Please RELEASE me, let me go..."

Now that the Loan Loss Book is flat...not much SP upside anymore to pad bottom line profit from accounting shananigans like "write-ins" of old accrued loss transactions from '08 from accrued loan loss reserves now near fully recognized.  So what's left to make Banksters legal $$$ next quarter?

Thu, 01/19/2012 - 09:22 | 2077431 falak pema
falak pema's picture

reposted from previous :

 

 

One interesting aspect of this ongoing Euro crisis : the inordinate transfer of assets from Eurobank balance sheets to American PDs or surrogates; awash with huge liquidities. The US banks are loading up on Euro assets sold at a discount as they have Zirp.

What Draghi and Monti are now doing are emulating them! The Abbot and Costello show here in Eurozone is helping them as ECB prints by the back door "LTRO" in concert with FED. 

Whence the current euphoria in WS banking quarters!

I think the CDS/Greek debt talks are froth and Mafia type last minute haggling. The line in the sand has been drawn and on D-Day Greece, it'll all fall into place. 2012 looks like can  kicking will be intense world -wide sport as its election year for O'bammy, and lil Sarkozy. And damn the structural house of cards as deflationary Hell can wait!

TD should fill us in on this take of current financial short term bonanza in US quarters and its implications.

 

Thu, 01/19/2012 - 09:21 | 2077432 Northeaster
Northeaster's picture

Question for the economic people:

How can banks lose money these days?

http://www.frbdiscountwindow.org/

.25%? .75%? That's to me, a layman, says to grab all the Fed money I can at almost zero risk?

We know that banks are not under any pressure on the mortgage fraud arena, as it looks like they will be getting a free pass (basically, billions in settlement, for trillions in damage). B of A especially, even with liabilities, should go under yes? But won't as TPTB protect them at all costs?

It doesn't look like CONgress will do anything, as most of these banks donate generously to them. What kind of event, if any, would it take to bring banks back to reality and not rely on larceny upon the citizenry?

Thu, 01/19/2012 - 09:30 | 2077453 azzhatter
azzhatter's picture

Rally Time!!!! Buy buy buy, Dick Bovine is bullish, Everything is fine america, go out and buy that McMansion quick.

Thu, 01/19/2012 - 09:36 | 2077464 GMadScientist
GMadScientist's picture

Like watching someone furiously paddling toward shore in a boat taking on water too fast for them to make it.

Priceless.

Thu, 01/19/2012 - 09:55 | 2077483 cowdiddly
cowdiddly's picture

The line that cracked me up was goodwill impairment was only written down .6 bil AHAHAHAHAHAHAHAHAHAHAHH

nothing like having a killer brand name. lol

The rest of it reads like a long- we had to sell our long term assets/investments to stay afloat and since accrual based accounting only allows you to report these gains in the quarter sold it makes the quarter look good. As for next qtr? ewwwwwwwwwww

 

Thu, 01/19/2012 - 10:10 | 2077541 CaptainObvious
CaptainObvious's picture

"Goodwill impairment - ($0.6)"

Is this shorthand for "reprinting and remailing the fee schedules after we had to rescind the $5 ATM fee"?

 

So possible losses are estimated for $5B.  Good thing Uncle Warren wrote them that check for the same amount then.

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