Bank of America Corp. (NYSE: BAC) reported a 14 percent decrease in profits for the December ending quarter of 2014, with reduced bond yields being the main variable affecting the institution’s earnings. However, there were some positives to be seen in a rather downbeat quarter four 2014 financial report, as the bank reported a drastic decline in legal fees.
According to Bank of America Chief Financial Officer Bruce R. Thompson, the December 2014 frame featured a “challenging rate environment,” but the bank is looking forward to earn $3.7 billion more, due to higher yields on loans and securities contingent on interest rates moving up by one percentage point. This is higher than the $3.1 billion previously forecasted.
Most bank loans are predicated on the gyrations of interest rates, which means a financial institution can earn additional income from the same assets should rates move upwards.
Net income for common shareholders was reported at $2.74 billion for the December 2014 quarter – this translated to an earnings per share of $0.25 following adjustments for Bank of America’s mortgage bond portfolio and two charges pertaining to how the bank values derivatives and debt. Earnings were at $0.32 per share, or just one cent higher than the analyst consensus forecast of $0.31.
Another variable that told on Bank of America’s earnings was bond trading revenue, which plummeted 30 percent to $1.46 billion due to the bank performing poorly in corporate and mortgage security trading, two traditionally important areas for the institution.
In the December 2013 quarter, Bank of America had earned a rather unexpected $220 million, as it had recovered from positions that were dated in the run-up to the global financial recession of 2008-09. However, total revenue was down in the recently concluded quarter, falling 13 percent to $18.73 billion, with accounting adjustments yet to be taken into account. Operating expenses in quarter four 2014 were down 18 percent to $14.2 billion, and reached its lowest level since Bank of America’s acquisition of Merrill Lynch in 2009.
On an upbeat note, Bank of America’s legal expenses were down by 83 percent year-over-year to $393 million, and the bank also was able to successfully reduce costs in its delinquent mortgages division. Quotes attributed to Bank of America Chief Executive Brian T. Moynihan suggest that most of the institution’s previous legal issues have been ironed out, as the bank has since settled with the U.S. Justice Department to the tune of $16.65 billion.
Like other major financial institutions, Bank of America was successfully chased by the U.S. government over mortgage loans that had soured in the months and years that led up to the Great Recession of the late 2000s.
With fourth quarter 2014 financials coming in, Bank of America is not alone in reporting a decline in revenues, profits, and other core financial statistics. Aside from BofA, JPMorgan Chase & Co. (NYSE: JPM) also recorded a 14 percent decline in profit, announcing its quarter four 2014 financials last Wednesday, while Citigroup Inc. (NYSE: C) saw its profits decline by 16 percent, as it announced last Thursday.