Bank of America (BoA) has become the latest US lender to post better-than-expected quarterly profits after benefiting from a drop in bad loans.
The second-largest US bank said it was entering its new financial year with a vastly improved balance sheet, having struggled under the weight of bad mortgages it took on when it bought Countrywide Financial in 2008, just before the housing downturn turned into a full-blow financial crisis.
With the reporting season for US banks in full swing, Goldman Sachs is also expected to deliver forecast-beating numbers today, while the pressure will be on Morgan Stanley tomorrow after its string of upbeat results.
BoA reported a net profit of $3.4 billion (£2bn) for the three months to December, up from $732 million a year earlier. Fourth-quarter revenues grew almost 14 per cent to $22.3bn, ahead of Wall Street forecasts of $21.8bn.
JP Morgan Chase and Wells Fargo both reported better-than-expected earnings on Tuesday, and BoA chief executive Brian Moynihan said yesterday that the group was doing a “great job winning in the marketplace”.
Chief financial officer Bruce Thompson added: “We enter this year with one of the strongest balance sheets in our company’s history. Capital and liquidity are at record levels, credit losses are at historic lows, cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum.”
Charges for bad debts fell to $336m, from $2.2bn a year earlier, while the improving credit conditions saw the number of mortgages 60 days or more in default drop 58 per cent.
However, the effects of the financial crisis continue to linger over the bank. Litigation expenses jumped to $2.3bn in the fourth quarter, from $916m in the same period a year earlier. Most of the litigation related to issues linked to the meltdown that forced the US government to bail out BoA twice.
Since the crash, the bank has been slimming down under plans by Moynihan to save the bank $8bn a year. Headcount at the group has fallen to 242,100, from 267,200 a year ago.