Bank of America’s Q1 earnings (BAC) were horrible by most measures, but CFSB finds a silver lining. Although Credit Suisse did cut its estimates (08/09 EPS est. down to $2.70/$4.00 from $3.40/4.40), it had a some positive things to say:
Underlying results were better than expected. Top line revenues beat expectations, particularly spread inc., and expenses were well controlled. Although credit quality deteriorated, mgmt. substantially increased reserves.
colour wasn’t all positive, however:
…Outlook Tempered. While overall business activity in consumer and commercial proved resilient this qtr, the oper. environment remains challenging. Capital mkts activity remains volatile and credit quality will continue to deteriorate, particularly credit tied to residential real estate and unsecured consumer instalment debt. Consequently, mgmt suggested NCO’s are likely to trend higher from 1Q08 levels, including some additional reserve build. Exclusive of credit, spread income should benefit from respectable loan/deposit growth along with a steeper yield curve. Core net interest income is expected to be in the high-single digit range (adj. for LaSalle).
Although BAC’s dividend/capital mgmt outlook remain unchanged, we would not rule out a dividend cut/additional capital raise as an option to preserve capital and guard against more pronounced credit quality deterioration over the near-term.
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