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Bank of America returns to profit as legal costs subside

April 15, 2015

NEW YORK (AP) — Bank of America returned to a profit in the first quarter as the legal troubles that have plagued the company for several years subsided. But the bank’s primary businesses struggled as interest rates remained low.

LEGAL COSTS DROP: The bank’s legal expenses, stemming from the housing bubble and financial crisis, are behind it for the moment. Those costs fell to $370 million from $393 million in the fourth quarter and were a fraction of the $6 billion a year earlier. That big hit — which pushed BofA to a loss in last year’s first quarter — stemmed from a settlement with the agency that oversees mortgage markets. BofA has paid out more than $70 billion in legal settlements since 2008 to resolve its role in the financial crisis.

BANKING DRAGS: Revenue fell or was flat in BofA’s four main businesses: consumer banking, wealth management, global banking and global markets. Net revenue for consumer banking fell to $7.45 billion from $7.65 billion. The bank’s largest division by revenue was hurt by lower credit card yields and balances, as well as market-related adjustments to debt securities.

INTEREST RATES: BofA has a higher exposure to low interest rates than other banks because of its focus on consumers. Those low rates mean it cannot charge as much on loans. Rates on mortgages and other consumer loans are affected by the yield on the U.S. 10-year Treasury note, which fell to around 1.92 percent from 2.19 percent in the first three months this year. JPMorgan Chase or Goldman Sachs, which have large trading operations, are able to offset that issue with higher earnings from that business.

VOLATILITY: BofA, like other banks, benefited from the volatility in financial markets. As trading volume rises, banks earn more in commissions. It also allows traders to take advantage of swings in markets to make a profit.

Foreign exchange trading revenue was the highest since BofA merged with Merrill Lynch in 2008. However, because the bank does not trade as much in currencies as others, the benefit wasn’t meaningful to its bottom line, CFO Bruce Thompson said.

THE NUMBERS: In the first quarter, BofA earned $2.98 billion after payments to preferred shareholders, compared with a loss of $514 million a year earlier. BofA’s net revenue fell to $21.2 billion.

On a per-share basis the bank earned 27 cents, compared with a loss of 5 cents a year earlier. Financial analysts surveyed by FactSet were looking for the bank to earn 29 cents per share.

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