Updated from 9:53 a.m. EDT.
Bank of America
shares surged as much as 12% after the Charlotte, N.C., bank beat Wall Street's expectations for second-quarter earnings, despite a 41% decline in profits from a year earlier.
The bank recorded profit of $3.41 billion, or 72 cents a share, in the three months ending June 30. That compares to $5.76 billion or $1.28 a share, a year earlier, but up from $1.2 billion or 23 cents in the first quarter. Revenue rose slightly to $20.3 billion.
BofA's second-quarter profit including a pre-tax merger restructuring costs of $212 million. BofA closed its purchase of
on July 1.
Analysts, according to Thomson Reuters, estimated the company would earn 53 cents a share in the quarter.
BofA took a provision expense of $5.83 billion in the second quarter, related to its consumer and commercial portfolios tied to housing, including home equity, residential mortgage and homebuilders, it said.
Separately, the company said Countrywide had a second-quarter net loss of $2.33 billion, including roughly $4 billion of credit-related losses. It now expects the Countrywide deal to be accretive this year, where previously it had said the deal would be neutral to earnings in 2008.
There's a lot that's been reported about our Countrywide transaction, much of which has been exaggerated, and in some cases untrue," Lewis said on a conference call to discuss second-quarter earnings. "The essential message is that Countrywide is on track and adding to the profits of
Bank of America as we speak."
Lewis said that with the $4.1 billion acquisition of Countrywide, BofA's Tier-1 capital level will fall below 8% in the third quarter, but hopes to recover Tier-1 capital to over 8% by mid-2009.
Countrywide's second-quarter charges of $3.7 billion include $2.3 billion provision for credit losses, $760 million provision for rep and warranties and $630 million in losses from securities impairments and capital markets activities.
BofA also increased the expected total cost saves from the acquisition by roughly one-third to $900 million. BofA previously said that it plans to eliminate 7,500 or 12.5% of Countrywide's staff.
Since the Countrywide deal did not close until the beginning of the third quarter, the impact of the deal will not be reflected until it reports quarterly earnings in October, the company said.
"Obviously their second quarter results -- a loss of $2.3 billion -- were significantly impacted by continued credit deterioration," CFO Joe Price said on the call. "Credit costs included in the second quarter were comprised of a credit provision, which included reps and warranties, impairments
on available for sale securities, and other small items, which totaled just under $4 billion pre-tax. Much of this ... as it relates to the future -- and to the extent it can be -- will get recorded in purchase accounting, so it will have a much lower impact."
In relation to Countrywide's debt -- an issue that sent shares of the mortgage lender
spiraling lower in May
-- Price added that BofA does not "intend to guarantee the public debt, but we do understand the ramifications of not paying at maturity."
BofA estimates it will restructure $40 billion in home loans over the next two years.
Consumer credit quality continues to deteriorate, particularly in BofA's home equity portfolio and to a lesser extent in its residential mortgage and other unsecured consumer loan portfolio. "Credit quality will continue to be an issue in the second half of 2008," he said.
"Most of our businesses are performing very well even with the state of the economy and the problems in housing. We believe our revenue streams are sustainable," Lewis said. "However as I said we are not in denial. Credit losses are still going up, but given what we see today, they are manageable."
Still Lewis did not seem to forewarn against losses in its prime mortgage portfolio, as
CEO Jamie Dimon suggested last week.
Jeff Harte, an analyst at Sandler O'Neill & Partners said that BofA's credit quality deterioration was "worse than expected, but not extremely so." It does not suggest that BofA is "seeing as rapid a rate of deterioration as indicated by JPM last week," he wrote in a note.
In its investment banking arm, BofA took writedowns totaling $1.22 billion -- approximately $645 million of the writedown was related to collateralized debt obligations, down from a $1.47 billion writedown on the complex securities in the first quarter, it said.
BofA's beat joins better-than-expected results last week from
, JPMorgan Chase and
. Those results contributed to a 3.4% jump in the
Dow Jones Industrial Average
is set to report results on Tuesday.
BofA shares were up 4.8% to $28.80 in recent trading.