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Bank of America Posts Higher Profit As Expenses Fall

  • Bank of America reports fourth quarter earnings of $3.4 billion, or $0.29 a share, on revenue of $21.7 billion.
  • Analysts polled by Bloomberg on average expected earnings per share of $0.27.
  • For the full year, the bank earned a profit of $11.43 billion, or $0.90 a share, on revenue of 89.8 billion.
Updated from 7:42 a.m. with additional details throughout.

NEW YORK ( TheStreet) -- Bank of America  (BAC - Get Report) showed progress on expenses and improvement in several key businesses as it reported fourth quarter earnings, though earnings as usual contained several messy items that gave analysts plenty of room for debate.

Bank of of America shares were up 2.86% to $17.25 shortly before the start of trading Wednesday, while JPMorgan Chase (JPM) and Wells Fargo (WFC), which reported Tuesday morning, were essentially flat. 

Bank of America earned  $3.4 billion, or $0.29 a share during the fourth quarter, compared to $732 million, or $0.03 a share in the year-ago period.

The fourth-quarter results came in ahead of the consensus EPS estimate of 27 cents, among analysts polled by Bloomberg

Net income for all of 2013 was $11.4 billion, or $0.90 per diluted share, compared to $4.2 billion, or 25 cents a share, during 2012, according to results announced on Wednesday.

"We enter this year with one of the strongest balance sheets in our company's history," said Bank of America CFO Bruce Thompson in the company's press release. "Capital and liquidity are at record levels, credit losses are at historic lows, our cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum."

"One time" factors included $2.3 billion in legal costs and an accounting oddity known as DVA costs reduced profits by $600 million. But a reserve release added $1.2 billion and a low tax rate added another $480 million, according to an analysis by Atlantic Equities' Richard Staite.

Staite, who has Bank of America as his top pick among global U.S. banks, pointed to improvement in several business lines and a decline in the cost of handling troubled mortgages in a unit known as Legacy Asset Servicing. The drop in that business to $1.8 billion from $2.2 billion in the previous quarter "was better than we expected," Staite wrote.

Sterne Agee's Todd Hagerman who is neutral on Bank of America, remained skeptical in a note published shortly after the release. 

"Although the underlying profitability of most business units improved sequentially, particularly banking--heavy expenses (elevated litigation accruals) a smaller balance sheet, and lower consumer loan balances were soft spots in the quarter. Additionally, while credit measures were broadly improved, credit leverage seems to be waning as reserve coverage slipped below 2%," Hagerman wrote.

The bank's consumer and business banking unit reported fourth-quarter net income of $2.0 billion, up $521 million or 36% from the fourth quarter of 2012, driven by a lower provision for credit losses, lower noninterest expense and higher revenue.

In the bank's global wealth and investment management segment, net income rose 35% year-over-year to $777 million during the fourth quarter.

The global markets segment reported net income of $215 million in the fourth quarter, increasing from $181 million a  year earlier. Stripping out the DVA losses, net income was $341 million in the fourth quarter of 2013, down from $355 million during the year-earlier quarter.

Global markets revenue increased $604 million , or 20% from the year-earlier quarter to $3.6 billion. Excluding DVA, revenue increased $528 million, or 16%, to $3.8 billion

The global banking unit earned $1.3 billion in the fourth quarter, down $125 million from a yer earlier, as an increase in revenue was more than offset by a higher provision for credit losses as the company built reserves associated with loan growth.

-- Written by Dan Freed in New York.

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

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