This summary is based on the first quarter fiscal 2008 earnings call conducted by Bank of America Corporation (BAC) on April 21, 2008.
Management:
President & CEO: Kenneth Lewis
Investor Relations: Kevin Stitt
CFO: Joe Price
Key Investors Issues
- EPS were 23 cents per share compared to $1.16 per share last year.
- Income was $1.21 billion compared to $5.26 billion a year ago.
- Banking earnings of $1.1 billion were down almost 60% from a year ago.
First Quarter Highlights
Bank of America earned $1.2 billion or 23 cents per share which included after-tax merger charges of $107 million or 2 cents per share.
Major items included issuance of approximately $13 billion in capital in January bringing Tier 1 ratio to 7.51%, a positive impact related to the VISA IPO, a significant increase in provision expense which resulted or included $3.3 billion of reserve increase, additional write-downs involving super senior CDL and subprime related exposure, the leverage lending book and the CMBS book which all together totaled over $2 billion and additional support to the Columbia cash funds of $220 million.
Banking earnings of $1.1 billion were down almost 60% from a year ago.
This drop was due to a $4 billion increase in provision which more than offset a 17% in increase in revenue with minimal impact from LaSalle.
Revenue actually increased 3% excluding the VISA gain from the fourth quarter.
- Compared to a year ago non interest income grew 21% excluding the VISA gain due to good performance in all categories. The company increased the allowance for loan losses in the consumer businesses by approximately $2.8 billion due mainly to ongoing weaknesses in the housing market and the economy along with seasoning of several growth portfolios.
- Product sales were strong in several areas with net new checking accounts of 557,000 exceeding the total from a year ago by 14%. In residential mortgage the rate environment in early January caused somewhat of a mini refi boom that resulted in $23 billion of directed consumer fundings which was the strongest activity in five years.
Average retail deposits increased approximately $11.5 billion or 2.3% from the fourth quarter.
- The company maintained number one ranking as card services lender in the US and UK with average managed consumer credit card outstandings up 3% from the fourth quarter and 10% from a year ago.
- Global wealth and investment management earned $228 million as revenue growth of 8% versus a year ago was impacted by the cash fund support of $220 million. In addition provision increased $220 million related to housing pressures on home equity loans. On the positive side asset management fees and GWIM increased 6% from a year ago after adjusting for the businesses the company either added US Trust and LaSalle or sold Marsico. The integration of US Trust continues to be on schedule and will be substantially completed in the second quarter.
- Premier banking and investments experienced good growth in brokerage income, fee based assets, loan production and deposit levels. Loans with premier customers rose 14% from a year ago with organic growth in deposits up 6%. Assets under management and GWIM closed the quarter at $607 billion about flat with a year ago after adjusting for businesses added or sold.
- Strong inflows including $13 billion into equity funds over the past 12 months were offset by negative market performance. Global corporate investment banking earned $115 million in the first quarter reflecting the negative impact of events in the financial and housing markets, although net income is up significantly from fourth quarter it is down from $1.5 billion a year ago.
- C mass lost $1.1 billion versus earning $528 million a year ago driving the loss for the markdowns I referenced earlier. Otherwise investment bank had good client activity with investment banking fees of $665 million reflecting good results in equity underwriting and investment grade issuance.
- Excluding C mass the rest of GCIB and that is mainly lending and treasury services, earning $1.2 billion during the quarter up from a year ago after adjusting for the VISA gain. Good client activity and the addition of LaSalle more than offset an increase in provision expense. Client activity drove an 11% organic growth in loans and better spreads. Not included in the three business segments is equity investment income of $268 million in the first quarter. This is below range of $300 million to $400 million talked about in January due to less liquidity in the markets.
Key questions from the first quarter earnings call conducted by Bank of America Corporation on April 21, 2008.
Matthew O’Connor (UBS):
There are a couple of moving pieces that could benefit that have been discussed in the paper the last day or so with respect to China construction and the sale of the prime brokers business. Could you give an update on where you stand there and also the potential boost to capital from those transactions?
Joe Price: We will work with the Chinese to see what the ultimate level where they would be comfortable with us holding and then on what schedule they would want us to begin monetizing the remaining piece. We have to do that being ever mindful of what they wish and respect for them. We have got a great relationship there and we want to keep it that way. Over time you would see us increase before we did anything on the other side remind you that contractually we have got a lock-up on our investment until at least the fourth quarter. Right now on that side our focus on the strategic assistance agreement and the relationship. On the prime brokerage sale, we continue down a path to execute that transaction.
Matthew O’Connor (UBS):
As you exercise the options from China construction that would flow through OCI the large gain that you have there and boost capital, right?
