Saturday, January 26, 2013

Bank of America Earnings Review: Limping Along

Bank of America reported QE December 2012 financial results on January 17

A Bank of America earnings prayer: How long oh Lord? How long, oh Lord, must this greatest banking debacle in history continue? When reviewing Bank of America, the World's Most Unstable Bank, we are talking pennies, as in pennies per share. This quarter earnings per share were $0.03, last quarter was $0.00 per share. The 18-quarter average has been a loss per share of -$0.03. Lowered expectations and a divine entreaty sum up financial performance.

CEO Brian Moynihan continues cleaning up the financial crisis carnage. Moynihan announced 2 quarters ago a Project New BAC: a multi-year, multi-billion dollar cost cutting plan which will include a workforce reduction of tens of thousands. The prior "banking" model had shattered and collapsed into rubble.

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.

The financial performance volatility has lessened in recent quarters. Risk management consists of all hands on deck searching the skies for incoming realized losses and hoping they are adequately reserved for. Financial position has stabilized and capital is actually strong. Operating expenses and losses are too high in relation to gross revenues.

At QE 12-31-12, I have rated Bank of America a "C+" on a scale of A+ to G-. This is a downgrade from "B-" at the prior QE 9-30-12. The median rating is "D" and the average rating at QE 9-30-12 was "C". Financial position is weighted more than financial performance. The QE 9-30-12 bank ratings review is here.

“We enter 2013 strong and well positioned for further growth,” said Chief Executive Officer Brian Moynihan. “Double-digit growth since last year in mortgage production, commercial lending, and Global Markets revenue demonstrates the power of deeper customer and client relationships as we intensify the focus on connecting all our capabilities.”

"We addressed significant legacy issues in 2012 and our strengths are coming through," said Chief Financial Officer Bruce Thompson. "Capital and liquidity remain strong and credit continues to improve. Our primary focus this year is to grow revenue, manage expenses and drive core earnings growth."


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