BAC Beats Median Consensus

Highlights include Bank of America Corporation (BAC - Analyst Report), American International Group, Inc. (AIG - Snapshot Report), Citigroup, Inc. (C - Analyst Report), JPMorgan & Chase Co., Inc. (JPM - Analyst Report) and BB&T, Inc. (BBT - Analyst Report)

BAC Reports Better Results on Acquisitions, One-Time & Mark-to-Market Gains

Bank of America Corporation (BAC - Analyst Report) this morning reported its 1Q09 net income at $4.2 billion and diluted earnings (after preferred dividends) of $0.44 per share, ahead of the median expectations of $0.04 per share.

We may add that the range of analysts' expectations has been very wide for the banks this quarter, due to uncertainties related to mark-to-market accounting benefits, AIG (AIG - Snapshot Report) payout benefits and numerous special items. In the case of BAC, the estimates ranged from a loss of $0.22 per share to a gain of $0.20 per share.

Results for the quarter included Merrill Lynch (which Bank of America had acquired in January) and Countrywide Financial (acquired in July of last year). The results also included a $1.9 billion pre-tax gain on the sale of China Construction Bank shares.

Further, the bank recorded $2.2 billion in gains related to mark-to-market adjustments on Merrill Lynch structured notes as a result of credit spreads widening.

Net interest income increased 25% due to an improved rate environment and higher asset base resulting from the acquisitions. Noninterest income rose more than three times. The bank originated $85 billion in first mortgages during the quarter, of which approximately 75% were for refinancing.

Credit quality deteriorated further across all loan portfolios and nonperforming assets increased to $25.7 billion (2.65%) compared with $18.2 billion (1.96%) at December 31, 2008. The provision for credit losses rose to $13.4 billion from $8.5 billion in 4Q08.

In all the banks' results declared so far -- such as Citigroup (C - Analyst Report), JP Morgan (JPM - Analyst Report), BB&T (BBT - Analyst Report), etc. -- we have seen sharp deterioration in credit quality, especially in the housing and credit card portfolios. BAC had a loss of $1.77 billion in its credit card business during the reported quarter. We anticipate the losses to rise further through the end of FY09.