Wednesday, July 25, 2012

Bank of America Earnings Review: Could Be Worse, Cost Cutting Announced

Bank of America reported QE June 2012 financial results on Wednesday, July 18

This was a darn good quarter for Bank of America, the World's Most Unstable Bank. Lower expectations enough and you can meet them. I even have the vague feeling BAC has moved on from the very worst of their troubles. However, doom is most likely alive and well in the background and may be in the form of junk mortgage repurchases. For now, a sigh of relief is in order and we'll wait and see what hell the next quarter might bring.

CEO Brian Moynihan continues cleaning up the carnage from the biggest debacle in banking history. He is now implementing Project New BAC: a multi-year, multi-billion dollar cost cutting plan which will include a workforce reduction of tens of thousands. I see no problem with a leaner, more efficient Bank of America. Downsize this beast! The past, and even recent, business model is broken.

The foremost problem is contingent liabilities, ongoing legacy losses, that surface and the lawsuits and government regulatory actions that result. After reserving billions of dollars, the worst of the incredible and extraordinary losses appear accounted for. Only time and fate will tell.

Metric, QoQ Change, YoY Change
Total Assets: $2.16 trillion, -1%, -4%
Net Revenues: $21.97 billion, -1%, +66%
Net Income: $2.46 billion, +277%, -128%
Earnings per Share: $0.19, +533%, -121%

At QE 6-30-12 I have upgraded Bank of America to a "B" from a "C+" at the prior QE 3-31-12. This is on a scale of A+ to G-. The median rating is "D" and the average rating was "C" at QE 3-31-12. Financial position strength is weighted more than financial performance. The QE 3-31-12 bank ratings review is here.


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