Updated from 9:02 a.m. with additional information throughout.
- Bank of America reports first-quarter profit of $2.6 billion or 20 cents a share
- Net revenue came in at $23.7 billion
- The consensus estimate among analysts was EPS of 22 cents on revenue of $23.41 billion
NEW YORK (TheStreet) -- Bank of America (BAC) on Wednesday said its first-quarter profit quadrupled vs. an easy comparison a year ago, though cost-cutting efforts drew a lukewarm reception from analysts.
First-quarter operating expenses of $18.15 billion were $150 million above the forecast of Credit Suisse analyst Moshe Orenbuch, as compensation was slightly higher than the analyst expected. Orenbuch noted, however, that Bank of America did see a $500 million drop vs. the fourth quarter in the unit known as Legacy Asset Servicing. Those costs, associated with resolved problem mortgages left over from the subprime crisis, are expected to fall by several billion dollars in the next few years -- a key to bullish arguments for the stock.
Legacy Asset Servicing still accounted for $2.6 billion in expenses in the quarter and Bank of America CFO Bruce Thompson said the bank aims to bring that number below $2.1 billion by the end of 2013.Sterne Agee analyst Todd Hagerman was not greatly impressed. The bank "continues to be dogged by exceptionally high legacy mortgage related costs," he wrote in an email exchange Wednesday. The analyst added "litigation related costs were little changed in the quarter and credit quality measures were mixed at best." As for its capital markets business, Bank of America "simply didn't hit the ball out of the park relative to their peers thus far," Hagerman wrote. Still, Bank of America showed dramatic improvement in its Global Markets segment, earning nearly $1.4 billion for the quarter compared to a $338 million loss a year ago. UBS analyst Brennan Hawken wrote in a report that revenue missed his estimates by $1.4 billion, though he added that Bank of America "made up the difference in lower expenses." Still, he added "concern about the revenue impact of BofA's extraordinary cost cutting could start to weigh on the stock, which has been our concern around the bull thesis on BofA." FBR Capital Markets analyst Paul Miller argued in a note the quarter was "decent," as he cited "strong" loan growth and margins. Still, he argued expenses remain a concern. "Expenses were higher than Street estimates given the litigation expense and annual retirement eligible stock compensation expenses of $893 [million,]" Miller wrote. "Though the company appears to remain on track for their cost savings initiative, the company needs to cut expenses materially while also maintaining revenue." These challenges, "coupled with the litigation overhang that's eating about [10 cents per share] in earnings per quarter," caused Miller to remain neutral on the stock. Bank of America said it reached an agreement in principle to settle for $500 million three class action lawsuits involving residential MBS issued by Countrywide. While the settlement contributed to higher expenses Keefe, Bruyette & Woods analyst Christopher Mutascio wrote in a report that he was "positively encouraged by the settlement." Bank of America's shares were down 5.17% to $11.65 in afternoon trading Wednesday. The Charlotte, N.C-based banking giant reported net income for the first quarter of $2.6 billion or 20 cents per share, compared to $653 million, or 3 cents per diluted share, in the first quarter of 2012. Revenue rose 5% to $23.7 billion from $22.5 billion a year ago. Analysts polled by Thomson Reuters expected earnings of 22 cents per share on revenues of $23.41 billion. "Solid increases in loan growth to small businesses and middle-market companies, four straight quarters of steady growth in mortgage originations, record earnings in wealth management, and another quarter near the top in investment banking fees show we are balanced, focused and moving forward," said CEO Brian Moynihan in a statement. Bank of America shares have returned 6% this year after they more than doubled in 2012. Over the past five years, the shares are down nearly 70%. -- Written by Dan Freed in New York. Follow @dan_freed
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