Bank of America said Friday its second-quarter net income rose 15 percent to $2.78 billion as improvements in the company's consumer loan businesses made up for a drop in trading revenue.
The bank's results beat expectations and provided further evidence that losses from failed loans at the nation's big banks may have peaked in the first half of 2010. Bank of America says it reserves to cover losses from loans fell 17 percent from the first quarter of this year and 39 percent from a year ago. JPMorgan Chase & Co. on Thursday also reported improvements in its consumer loan business.
In a statement, Bank of America chief executive Brian Moynihan said the company's "credit quality improved even faster than we expected." Bank CEOs have been cautious throughout the aftermath of the 2008 financial crisis when reporting progress in their loan businesses. Economists and investors are looking to those loan loss levels as an indicator of how well the economic recovery is faring.
Bank of America's second-quarter net income, which reflected the payment of dividends on preferred stock, amounted to 27 cents per share. A year ago, the bank earned $2.42 billion, or 33 cents per share. Analysts expected profit of 22 cents per share in the most recent quarter, according to Thomson Reuters. Revenue totaled nearly $30 billion in the quarter.
The company's trading business, which includes the Merrill Lynch operation, had a drop in income because of the steep dive the stock market took during the spring. JPMorgan Chase reported a similar slump in trading income.
Bank of America said revenue from trading of bonds, currencies and commodities fell $500 million from a year ago to $2.6 billion. Revenue from stock trading fell $300 million to $1 billion.
The Charlotte, N.C.-based bank was among the hardest hit during the credit crisis, and received $45 billion in bailout funds from the federal government including $20 billion for Merrill Lynch. It repaid the money last year. Like nearly all banks in the country, the company faced waves of loan defaults as more customers fell behind and investments soured.
The defaults have slowed but remain elevated, leaving banks will billions in losses and making them reluctant to lend. And many consumers and small businesses are unwilling to take on more debt, a trend that reduces demand for loans.
But the improving credit picture at Bank of America and JPMorgan offers hope that the economic recovery is taking hold and that banks' lending businesses could be normalizing.
Both Bank of America and JPMorgan added money to their reserves against loan losses loans during the second quarter, but the amounts fell sharply. That means fewer Americans are falling behind on their loans for homes, credit cards and other items.
Despite the improved performance, investors took a dim view of the company's results. Bank of America's stock fell 19 cents, or 1.23 percent, to $15.20 in pre-opening trading.
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