BAC Conf call notes from a blogger joe.
10:55 a.m.| Polite Analysts: Yesterday, the Wall Street Journal reported that B of A “is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management.”
That would seem to raise some obvious questions. Such as, “Was the report accurate?” Or, “What were the problems with risk and lilquidity management, and have they been fixed?” Or, “Are more board changes coming?”
None of those questions were asked.
The B of A call is over.
10:35 a.m.| Searching for a Bottom: Several of the analyst questions show a focus on the issue of when credit quality will bounce back, and where the first improvements will show up. There are not very good answers, but just asking the question shows much more optimism than was around a few quarters back.
10:20 a.m.| Do As I Say, Not As I Do : In the news release, B of A brags that its Merrill Lynch subsidiary ranked first in underwriting leveraged loans and junk bonds during the quarter.
During the call, Joe Price, the chief financial officer, emphasized a slide showing that B of A had reduced its own net exposure to leveraged loans by 32 percent during the quarter,
9:45 a.m.| B of A Talks : Ken Lewis, the B of A chief executive, is trying to sound positive. But he concedes that consumer credit losses will keep rising for the rest of the year. And he sounds like he is preparing us for more losses: “The profitability for the second half of the year will be much tougher” than in the first half, he says.
7:55 a.m.| Big Losses, But Not Easy to Find : The Bank of America news release starts out by proclaiming
“Strong Pretax, Pre-provision Income of $16 Billion.”
And it then adds that the bank had net income of $3.2 billion.
Sounds good, right.
If you keep reading, and keep careful notes, it does not look so good. Consider this paragraph, with my emphasis added:
Results were driven by continued strong revenue performance in the wholesale capital markets businesses as well as in home loans, complemented by the previously announced gains on the sale of China Construction Bank (CCB) shares and the sale of the company’s merchant processing business to a joint venture. These positives were somewhat offset by continuing high credit costs, including additions to the reserve for loan and lease losses, as well as significant negative credit valuation adjustments on certain liabilities including the Merrill Lynch structured notes and the impact of a special Federal Deposit Insurance Corp. (FDIC) assessment.
It turns out that B of A had $9.1 billion in profits, pretax, from those two things that are not going to recur. (Profits from sales to a joint venture are something of an accounting fiction, anyway. The profits from selling the Chinese bank stock are real, but hardly repeatable, although B of A does continue to own 11 percent of the bank.)
And what percentage of net income was that? Well over 300 percent.
Over all, on a pretax basis, B of A made $2.4 billion. (It got the net income up to $3.2 billion with an income tax benefit.)
So pretax, without the two extraordinary items, the bank lost $6.7 billion. That is not, however, a number the bank chooses to print.
Otherwise, the tale is not unlike what we heard earlier in the week from other banks. Credit cards are producing red ink, but profit margins on new business are up.
Here’s one indication of how banks make money in 2009:
For what appears to be the first time — they show results back to the second quarter of 2008 — the bank’s deposit segment reported more income from “service charges” than from “net interest income.”
(You can find that on Page 16 of the supplemental information the company released.)
In other words, they now make their money from all those pesky fees than they do from the basic business. And that is despite the fact that the average interest rate on savings accounts fell to 0.63 percent in the quarter, from 0.72 percent in the first quarter.
In both the first and second quarters, the service charges made the difference between the deposit segment making and losing money. |
