This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Bank of America Earns by Shrinking (Update 3)

Bank of America story updated with new details throughout, including Stifel Nicolaus analyst Chris Mutascio halving his 2012 estimates.

  • Bank of America reported a fourth quarter profit of $2 billion, or 15 cents per share.
  • Revenue was $25.1 billion.
  • Analysts expected earnings per share of 15 cents, according to consensus estimates from Thomson Reuters

NEW YORK ( TheStreet) -- Bank of America (BAC) continued shrinking its way back to health in the fourth quarter, hoping investors would overlook weak earnings and find encouragement in the bank's stronger balance sheet.

While the Charlotte, N.C. bank showed a fourth quarter profit Thursday, meeting expectations on earnings and beating on revenues, it showed limited earnings power, according to a report from Stifel Nicolaus analyst Christopher Mutascio.

Mutascio halved his 2012 estimates to 40 cents per share from 80 cents, while lowering 2013 estimates to 80 cents per share from $1.10. He nonetheless maintained his "hold" rating on the shares, noting the bank "significantly improved its capital position.

Mutascio enumerated $5.3 billion in one-time items in his report, including $2.9 billion from the sale of China Construction Bank shares, $1.2 billion on the exchange of trust preferred securities, and $1.2 billion in investment securities gains.

There was also $3.4 billion in one-time losses, according to Mutascio's report, including $1.3 billion on mortgage-related litigation expense, $800 million in fair value adjustments on structured liabilities, a $600 million goodwill impairment charge, and $500 million on debt valuation adjustments on trading liabilities.

"The net gains/losses equal a positive $1.9 billion. If you exclude these non-core items from the reported net income, the company's earnings would have been essentially break even," Mutascio wrote.

Bank of America reported net income of $2 billion or 15 cents per share, compared to a year-ago loss of $1.2 billion or 16 cents per share and a third quarter net income of $5.9 billion or 56 cents per diluted share.

Revenue came in at $25.1 billion, up 11% from a year earlier.

"We think revenues remain weak but there are positive trends in net charge offs and reduced costs," wrote Atlantic Equities analyst Richard Staite. He said the bank's guidance on meeting new capital requirements known as Basel III has also improved.

Analysts expected Bank of America to report earnings per share of 15 cents on revenues of just over 24 billion, according to consensus estimates from Thomson Reuters.

"We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company," said Chief Executive Officer Brian Moynihan. "We built our capital ratios to record levels during 2011 on the strength of our core businesses and by shedding those that are not core to serving customers and clients."

Evercore analyst Andrew Marquardt was encouraged by those efforts.

Despite what he termed a "miss" in core earnings, he argued investors are mainly focused on balance sheet strength ahead of an upcoming Federal Reserve "stress test."

"We do not believe Bank of America needs to raise capital based on our work, and we think today's results and upped capital target sends a strong message and supports our view that indeed the bank will be ok," through the upcoming stress test, he wrote.

Wells Fargo analyst Matt Burnell wrote in a report that Bank of America had a positive surprise in its net interest margins, which were up by 0.13% to 2.45% versus the third quarter.

Net interest margins, which reflect the difference between what it costs banks to borrow and what they charge on loans, were also better than expected at Citigroup (C) and Wells Fargo (WFC).

Burnell said that positive surprise, as well as balance sheet strength and the fact that the banks' shares trade at a low price-to-tangible book value, would likely cause the shares to perform well on Thursday despite what he argued were weak core earnings.

Bank of America closed up 2.35% to $6.96.

-- Written by Dan Freed in New York. Follow this writer on Twitter.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs