Instant View: Bank of America earnings fall, beat forecasts

NEW YORK (BestGrowthStock) – Bank of America Corp (BAC.N: ), the largest U.S. bank by assets, reported a second quarter profit (Read more your timing to make a profit.) 3 percent lower than a year prior, but still beat analyst expectations as credit costs declined for the fourth straight quarter.

The Charlotte, N.C.-based bank reported net income of $3.1 billion or $0.27 per share, down from $3.2 billion, or 33 cents per share, a year prior. Analysts had projected a 22 cents per share profit in the quarter, according to Thomson Reuters

I/B/E/S.

Revenues net of interest expenses decreased to $29.4 billion from $33.1 billion.

BofA shares, which initially edged higher after the results, reversed direction and were down 2.1 percent in premarket trading.

The following is reaction from industry analysts and investors:

PETER CARDILLO, CHIEF MARKET ECONOMIST AT AVALON PARTNERS,

“Bank of America looks to be a bit of a disappointment but nevertheless the overall trends for stocks remain high and what we are seeing is enthusiasm and more risk coming in to the market. For financials, so far, the earnings have not been too disappointing and investors will wait until conference calls to digest what the numbers mean considering that guidance is the key here. It will show how corporate America performs in this slow growth environment.”

JUSTIN URQUHART STEWART, INVESTMENT DIRECTOR,SEVEN

INVESTMENT MANAGEMENT, LONDON

“It’s a well-engineered result because of the circumstances around them. Their markets are not in good shape, but they have been able to engineer I suspect better margins and better write-offs.

“Core business is still going to look pretty weak but it’s interesting to see margins are still widening out. It just shows banks can be profitable.”

MIC MILLS, HEAD OF ELECTRONIC TRADING, ETX CAPITAL, LONDON

“A drop in income at BofA was tempered by profits exceeding estimates as the bank continues to repair its image with consumer and Congress alike. Being the largest consumer bank in the U.S., the latest improvement in the jobless numbers are also a major boost.”

MICHAEL NIX, PORTFOLIO MANAGER AT GREENWOOD CAPITAL

ASSOCIATES

“Sure (it looks good) on the surface. The devil’s in the details though, just like JPMorgan’s yesterday. You kind of see the headline number and go, ‘Wow, it’s a blowout,’ but then you start understanding how that came about. …There’s just a lot of ways for these banks to, I hate the word manipulate, but to have things that can impact the headline earnings.”

“I’d like to hear a little more about their mortgage business. I’m just hearing anecdotally that while rates are very attractive and there are a number of opportunities to refi or buy, the underwriting standards have (tightened). The pendulum has swung from fog-in-the-mirror approval to people who, from my perspective, have very strong credit not getting loans or getting difficult processes getting loans. When you start seeing that pendulum swing it can certainly constrain earnings prospects for some of these banks on the mortgage side.”

DAVID MORRISON, MARKET STRATEGIST, GFT GLOBAL MARKETS,

LONDON

“We have got a number of issues as we get into this earnings season. It’s going to be a difficult one to judge. Given that the equities have risen so fast, we need impressive figures for the markets to feel confident and take stocks higher. Like seeing the headlines in JPMorgan yesterday, earnings were good but the big worry was this drawndown in reserves and that was a negative for the market. I think some of the bigger banks are going to have problems in this earnings season given how strong they have been in the last three or four quarters and how they have consistently beaten estimates in what it has been an exceptionally good environment for the big banks. I think it’s going to be one of those things where it’s going be better to travel than to arrive. I think the expectations have been marked considerably lower over the past two months. The beat is not just on earnings but also revenues. Indeed, we really need to see strong forward guidance from the CEOs but I am not sure that’s going to be forthcoming.”

MATT MCCORMICK, PORTFOLIO MANAGER, BAHL & GAYNOR

“Their story was similar to JPMorgan in terms of trading and investment. It appears to be a very similar release in terms of the macro environment they are dealing with.”

“It appeared to me they had to sell a significant amount of assets to make these numbers.”

“I think you are going to see similar circumstances for the other banks. I don’t think it is going to be too much of a surprise to see trading revenues were down and credit quality was up. I think that will be the playbook a lot of banks are following.”

(Reporting by Steve Eder, Maria Aspan and Angela Moon in New York and Jon Hopkins, Atul Prakash and Dominic Lau in London)

Instant View: Bank of America earnings fall, beat forecasts