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Bank of America ends most profitable year since 2007

Good times might not fully be back at Bank of America, but they sure look a whole lot closer.

The Charlotte bank reported Wednesday that it earned $3.2 billion for shareholders in the fourth quarter, beating Wall Street’s estimates and capping its most profitable year since 2007.

The results were up 45 percent from the previous quarter, and more than nine times greater than a year ago.

“Although we still have work to do, we have made progress,” CEO Brian Moynihan told analysts on a conference call.

Bank of America still lags behind peers such as JPMorgan Chase and Wells Fargo in terms of profitability. More legal settlements may be still to come.

But analysts and the bank’s executives pointed Wednesday to a number of signs that the yearslong turnaround is taking hold.

The bank’s investment banking unit brought in a record $1.7 billion in fees in the quarter, and its wealth management arm also posted record results. Consumer banking performed its best in two years.

Over the course of 2013, Bank of America reported earning $10.1 billion for shareholders, or 90 cents per share. That’s up from 25 cents per share the year before.

“The foundation is there for us to grow and move the company forward,” Chief Financial Officer Bruce Thompson told reporters on a conference call Wednesday. “I would say we feel very good about going into 2014.”

Bank of America shares were up more than 2 percent Wednesday, closing at $17.15.

Long process

The bank’s share price has now rebounded to the highest it’s been in 3 1/2 years, a reflection of the long journey the bank has taken since Moynihan took the helm in January 2010.

As Bank of America fully realized the impact of its 2008 acquisition of subprime mortgage lender Countrywide Financial Corp., the bank took a massive $20 billion hit related to bad mortgages and mortgage-backed securities in 2011. The uncertainty helped push the stock price briefly below $5 per share.

That fall, Moynihan announced an ambitious companywide cost-cutting program known as Project New BAC, named after the bank’s ticker symbol. The plan entailed shedding 30,000 jobs, shuttering business lines and selling assets.

As that process unfolded, Bank of America’s shares steadily climbed through 2012 and 2013. The bank was also aided by a number of legal settlements that put a damper on earnings but removed uncertainty in investors’ minds.

Analysts said Wednesday’s results further indicate the bank has found its footing. The bank said it cut an additional $1 billion from its quarterly core expenses in the past year.

“I think that the earnings really showed that the bank is well into recovery at this point. Many of its businesses are seeing some good momentum,” Edward Jones analyst Shannon Stemm said, adding that 2013 may turn out to have been a turning point.

“There’s going to be some additional legal bumps along the way, but we anticipate Bank of America will continue to grow earnings and really focus on some of the core businesses.”

Troubling signs

The earnings results weren’t free from troubling signs, for investors or employees.

Bank of America set aside $2.3 billion to cover potential legal actions, more than double what it reserved last quarter. Thompson declined to comment on what specifically drove that decision.

William Schwartz, an analyst with ratings agency DBRS, said the threat of continued legal issues is still a significant drag on Bank of America.

He cited an $8.5 billion mortgage securities settlement entered into in 2011 that still needs to be signed off by a judge.

And after JPMorgan Chase agreed to a $13 billion settlement with a number of federal agencies, there has been broad speculation that Bank of America could be subject to another multibillion-dollar deal with the government.

“They’ve got a couple of big issues still outstanding,” Schwartz said. “You have to remember that and temper your enthusiasm until they get past these things.”

Bank of America shed more than 25,000 workers over the course of the year, or nearly 10 percent of its workforce. About 6,000 of those job losses came in the fourth quarter.

A sizable portion of that came in the mortgage business. In September and October, Bank of America told as many as 4,200 workers in two separate divisions they would lose their jobs.

One division services delinquent loans. Bank of America has significantly whittled the number of mortgages past due by 60 days or more over the past year, bringing the number down by nearly 60 percent to about 325,000.

The other processes new mortgages. As interest rates began to rise in spring 2013, the flood of people looking to refinance their loans slowed to a trickle. Bank of America said Wednesday that its mortgage volume shrank by half in the fourth quarter. Banks across the country – including Bank of America – shed loan processors by the thousands.

Some analysts say Bank of America and other banks have yet to show they will be able to increase revenue in an environment of low interest rates and lackluster demand for loans.

“Across the board, their traditional sources of revenue are going down. You just haven’t seen a new source of income from banks in a long time,” said Jim Sinegal, an analyst for Morningstar.

“I think it’s an industry where there’s just not a lot of innovation.” Staff writer Deon Roberts contributed.

Dunn: 704-358-5235; Twitter: @andrew_dunn
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