How did we reach this wonderful place? From the depths of despair, our financial sector is suddenly resurging like phoenix reborn. Bank of America ( BAC) reached its Nirvana with a first-quarter profit of $4.2 billion. Even after paying $1.4 billion in preferred dividends, that leaves $2.8 billion in net income, or 44 cents per common share, after dilution. That's better than a year ago, when the bank reported earnings of $1 billion, or 23 cents per common share. It's almost too good to be true. First, Wells Fargo ( WFC) surprised us with their profit, then more profit news from Goldman Sachs ( GS), JPMorgan Chase ( JPM), Citigroup ( C) and now Bank of America. Suddenly it seems like the whole mortgage nightmare and subsequent credit crunch was all just a bad dream. Now someone just needs to let investors know that the crisis is over. For some reason, Bank of America shares are plunging, and taking the other banking stocks down with them. What's the problem with investors? Can't they just be happy? Can't they accept that everything is fine and there's nothing to worry about any more? We just need to accept that Bank of America is getting its house in order. Consider the $15 billion loss Merrill posted in the fourth quarter before combining with Bank of America. Lots of trash got swept under the carpet in that move. And remember that BofA itself posted a fourth-quarter loss of $2.4 billion, including payment of preferred dividends. By clearing out the trash before closing the acquisition, Bank of America was able to include $3 billion in profit from Merrill Lynch for the first quarter -- but Merrill's results aren't included in the year-earlier results so the comparisons look especially good.
House cleaning also delivered a nice one-time gain of $1.9 billion for the first quarter when Bank of America sold stock it held in China Construction Bank. Talk about finding change in the sofa cushions! The government and regulators also chipped in to help with the Spring cleaning in innumerous ways. The Financial Accounting Standards Board's decision to relax the mark-to-market rules allowed Bank of America to write up the fair value of some Merrill Lynch debt by $2.2 billion. And the bank booked a $1.5 billion gain from the sale of debt securities. All the cheap money from the Feds went a long way as well. When you consider that net interest income jumped by 25% to $12.5 billion while total interest income only increased 1.4% to $22.2 billion, but you see the benefit of borrowing at cheap rates and lending at much higher rates. Bank of America's total interest expense actually decreased to $9.7 billion in the first quarter from $11.9 billion the year before. So all in all, it's a pretty good time to be a bank despite all the doom and gloom. Please don't spoil the moment by worrying about what will happen when all the cheap money and accounting favors run out.