Bank of America: Another Quarter and More Questions

NEW YORK (TheStreet) -- As Bank of America (BAC) readies its latest concoction of one-time special items and incomprehensible accounting gimmicks, it may be time for investors to get real about the bank's long-term earnings prospects.

Analysts are looking for Bank of America to earn 14 cents per share on revenues of $22.9 billion. Bank of America earned three cents per share in the first quarter on revenues of $22.5 billion. Year over year, the bank lost 90 cents per share on revenues of $13.5 billion in the second quarter of 2011.

While he shares the consensus forecast for roughly flat revenues versus the first quarter, Sandler O'Neill analyst Jeff Harte expects core revenues to be down 15%. The artificial boost will come from "swings in [debt valuation adjustment] and debt/trust-preferred repurchase gains and losses," he wrote in a June 29 research note.

In the wake of better-than-expected earnings from JPMorgan Chase, however, the outlook has improved slightly for Bank of America, according to Guggenheim Securities analyst Marty Mosby.

"We already anticipated a penny beat by [Bank of America], but if management can generate further efficiency gains while holding net interest margin relatively flat, this quarter's results could significantly outperform market consensus," Mosby wrote in a note published early Tuesday.

Bank of America has been slashing expenses and selling off business to shore up its balance sheet. The bank sold its Canadian credit card business last year and its Irish card business in March. It has also stopped buying home loans it doesn't originate itself. Those efforts have been largely successful in addressing capital concerns, though they haven't answered the question of where revenues will come from.

In downgrading Bank of America to "sell" from "underperform" in April, CLSA analyst Mike Mayo cited his "ongoing view that the firm's earnings power is declining and its uncertain ability to significantly reduce expenses without damaging the franchise."

Mayo also cited what he called "inconsistent management execution that includes false starts and gaffs with dividend increases, CFO and other management changes, inaccurate forecasts for legal-related mortgage losses, debit card usage flip-flop and other mishaps."

The mortgage losses, largely tied to misrepresentations by Countrywide Financial which Bank of America acquired in 2008, have been by far the most damaging issue for the company. Bank of America still needs to prove it has put this issue behind it in the face of increasingly aggressive behavior from Government Sponsored Entities Fannie Mae (FNMA) and Freddie Mac (FMCC), which want Bank of America to buy back problem mortgages underwritten by Countywide.

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