Bank of America beats earnings expectations

Bank of America Merrill Lynch released results from its fourth quarter Wednesday, beating expectations with adjusted earnings of $US0.47 a share.

Wall Street analysts were expecting the firm to report adjusted earnings of $US0.45 a share.

Like the other big banks, Bank of America took a hit from the recently enacted tax law, writing down $US2.9 billion primarily in deferred tax assets that declined in value.

JPMorgan earlier reported a $US2.4 billion fourth-quarter loss because of the new tax law, and Citigroup reported a $US22 billion loss.

Accounting for the one-time impacts of the new law, the bank had nonadjusted earnings of $US0.20 a share, beating expectations of $US0.14 a share.

“Responsible growth delivered solid results in 2017,” CEO Brian Moynihan said. “Pretax earnings rose 17%, and we continued to close in on our long-term return targets. We gained market share across our businesses while carefully managing credit, risk exposures, and expenses.”

Here are some other highlights from the release:

  • Adjusted revenue of $US21.4 billion, just below estimates of $US21.5 billion
  • Adjusted net income of $US5.3 billion, beating estimates of $US4.6 billion
  • Net interest income increased 11% to $US11.5 billion thanks to higher interest rates and loan and deposit growth
  • Consumer-banking revenue rose 10% to $US9.0 billion
  • Sales and trading revenue was down 9%, after accounting for one-off charges
  • Fixed-income trading was down 13%, while equities trading was flat
  • Tax reform: Approximately $US2.9 billion in losses from revaluing tax assets, in line with expectations
  • Average loan balance rose 6% to $US857 billion
  • Net charge-offs rose to $US1.2 billion from $US880 million – this was driven mainly by a single client charge-off totaling $US292 million

That last item, a $US292 million charge-off from a single client, is most likely attributable to the scandal-wracked South African retailer Steinhoff International, though Bank of America doesn’t specify the company by name.

A group of Wall Street banks loaned money last year to an entity controlled by Christo Wiese, the former chairman of Steinhoff International, whose stock has been ravaged by an accounting scandal.

Citi, HSBC, Goldman Sachs, and Nomura initially arranged the $US1.8 billion loan, backed by some 628 million shares of Steinhoff’s now-crippled stock, and subsequently sold off parts of the loan to other banks.

The soured deal has been shooting a hole through bank earnings.

JPMorgan reported a $US273 million hit to its fourth-quarter earnings from the deal.

Though Citi didn’t name the single client responsible for a $US130 million wipeout in its equities-trading revenue, it’s also most likely attributable to Steinhoff.

Other banks are expected to have exposure to Steinhoff as well.

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