Bank of America: Positive Earnings, Lower Reserves

Bank of America (NYSE: BAC  ) has turned its fortunes around by reporting $2 billion in profits for its first quarter. The number missed expectations and was lower than last years' first quarter, but it was more positive than last quarters' $1.2 billion loss.

There was some good news in the earnings report. The improving credit quality trend continued with delinquencies, non-performing assets and charge-offs all declining. Improving credit quality let the bank reduce its loss provisions by over $2 billion. Without the reduction in loss reserves, the quarterly earnings would have turned in to a loss. The bright spot in earnings was the global banking and markets segment -- which includes investment banking and trading -- turning in over two billion in profits. That mirrors what my Foolish colleague Morgan Housel found digging in to JP Morgan's (NYSE: JPM  ) earnings report.

The mortgage business continues to drag on earnings, losing $2.4 billion. That loss is substantially lower than prior quarters. Bank of America also settled claims for mortgage repurchases with Assured Guaranty (NYSE: AGO  ) , another step in cleaning up the mess left from the financial crisis.

Other positives include slightly improved capital ratios and a higher tangible book value per share. In fact, the shares currently trade below tangible book value, largely due to fears of lingering mortgage liabilities.

An earnings miss is never pretty, but Bank of America continues to show signs of improvement as it struggles through cleaning up the mortgage business. With a price below tangible book and a single-digit forward price-earnings ratio, Bank of America looks like a good value, but Foolish investors would be wise to look at the other big banks before buying in. Citigroup (NYSE: C  ) trades at similar a valuation, but is further along the recovery process with no losses reported over the last year and recent approval for a nominal dividend. JPMorgan and Wells Fargo (NYSE: WFC  ) trade at a slight premium to Bank of America, but both received an OK to raise dividends and buy back shares and did just that.

Bank of America does look attractive, but the market isn't discounting its slower progress to recovery compared to peers. For investors looking for a big bank and willing to accept some risk, Citigroup seems like a better deal. For a little less risk, JP Morgan and Wells Fargo are worth the slight premium. Foolish investors interested in adding a big bank should take a close look at others in the group before jumping in to Bank of America.

You can follow any of the stocks mentioned using our free watchlist service, My Watchlist.

Fool contributor Russ Krull owns shares of Wells Fargo and Citigroup, but does not have have a financial position in any of the other companies mentioned in this article. The Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Through a separate Rising Star portfolio, The Fool is also short Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy we can bank on.


Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1476993, ~/Articles/ArticleHandler.aspx, 10/31/2014 9:18:51 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement