Analysts had high expectations for Bank of America going into the release of its fourth quarter earnings; unfortunately, the $1.24B ($0.16/share) loss was a substantial setback to the positive momentum it had been building since early December. Countrywide continues to be a negative influence on earnings, particularly due to the poor performance of its mortgage portfolio.
Like most other banks, changes in loan loss provisions continue to have a tremendous impact on the the bottom line. Bank of America posted a $4.1B provision for loan buybacks - $1.1B higher than CEO Brian Moynihan had disclosed just three weeks ago. The total cost of credit and mortgage impairments for 2010 amounted to $12.4B, but Moynihan is optimistic that credit costs will steadily improve throughout 2011.
On the positive side, quite a few of the large charges they took this quarter were one-time expenses, which may make for an easier comparison in 1Q2011. Excluding goodwill write-downs, adjusted net income was $0.04/share - still far below the consensus of $0.24/share, but positive nonetheless.
Bank of America continues to work on cleaning up its balance sheet and strengthening its mortgage portfolio, particularly Countrywide's mess of subprime loans and potential looming loan repurchases. With one-time expenses out of the way and continuing credit improvement, the bar for first quarter earnings should be set higher - hopefully Moynihan can reach that bar.
-Dan Hurley, Junior Analyst