Bank of America is expected to put a cap on its best year since the financial crisis when it reports its fourth quarter results next week.
It’s a reflection of an improving U.S. economy and an improving balance sheet at a bank that found itself among the hardest hit when the mortgage market collapsed.
Analysts predict Bank of America will report Wednesday that it earned 87 cents per share in 2013, according to estimates from Bloomberg. That would be a 248 percent increase over the year before, and the Charlotte bank’s strongest results by far since 2007.
Wells Fargo, meanwhile, is hoping to add to its streak of quarterly profit increases at a time when rising interest rates are making it harder to produce money in mortgages. Analysts predict the San Francisco bank will report Tuesday that it matched the third quarter’s results or beat them by a penny per share.
Both banks’ earnings will be widely watched as investors hope to gain a deeper understanding of the U.S. economy. Though there have been signs of a strengthened recovery in recent months, a jobs report Friday showed the country added the fewest new jobs in three years.
Bank of America was able to beat Wall Street estimates in the third quarter by setting aside less money for bad loans as its borrowers’ financial health improved. The bank also continued to dig out from hundreds of thousands of delinquent loans primarily taken on in its 2008 acquisition of subprime lender Countrywide Financial.
The bank is also nearing the end of CEO Brian Moynihan’s signature cost-cutting program known as Project New BAC, which sought to take out more than $2 billion in costs per quarter. Bank of America has shed more than 40,000 jobs since it embarked on the initiative in 2011.
Analysts will be watching the bank’s progress on expense reductions and asking about the possibility that more major legal settlements might be in the offing.
Bank of America has spent or set aside more than $55 billion in legal costs since 2009 and has faced repeated questions on whether that would grow significantly. The past year was largely devoid of massive legal settlements even as peers such as JPMorgan Chase & Co. entered the cross hairs.
Wells Fargo will again be viewed as a bellwether of the U.S. mortgage market at a time when the industry is in transition. The bank is the largest mortgage lender in the country.
Profits in Wells’ mortgage unit fell significantly in the third quarter as rising mortgage rates caused fewer and fewer homeowners to refinance their loans. In response, Wells Fargo slashed thousands of mortgage processor jobs – and most other big banks followed suit.
Still, Wells Fargo was also buoyed by rising home prices, which allowed the bank to release nearly $1 billion it set aside to cover losses it thought it would incur when the market was worse.
Dunn: 704-358-5235; Twitter: @andrew_dunn
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