Credit Commentary

Bank of America Earns $3.2 Billion in Second Quarter

By Zarana on Monday, July 20 2009

Strong revenue performance in the wholesale capital markets businesses and in home loans complemented Bank of America Corporation (NYSE: BAC) second-quarter 2009 earnings to post $3.2 billion net income diluted earnings per share were $0.33.

Global Credit card services accounted to a net loss of $1.6 billion as credit costs rose in the weakening economies in the U.S., Europe and Canada. In addition, managed net revenue declined 2% YOY to $7.3 billion mainly due to lower fee income, higher net interest income and lower charge volumes.

The average managed loans has dropped to $173 billion, a 7% YOY decline, which was driven by lower purchase volume and higher defaults. The second quarter has accounted for $52 billion purchase, a 19%YOY decline

Noninterest expense fell 17% on lower operating and marketing costs. However, loan loss provision increased to $7.7 billion which was $4.2 billion a year ago, as the consumer card and consumer lending portfolios deteriorated due to the economic conditions and a rising level of bankruptcies. Also contributing were reserve additions related to maturing securitizations.

Credit quality deteriorated further as the economic environment weakened. Consumers remained under significant stress as unemployment and underemployment increased and individuals spent longer periods without work. These conditions led to higher losses in almost all consumer portfolios compared with the prior quarter. Managed Net charge off rate for Credit Cards is all time high at 11.7% in this quarter, up from 8.6% in prior quarter. However, the delinquency (over 30 days) has decreased from prior quarter due to seasonal factors and dropped to 7.64%

Moreover, during the second quarter, Small Business Banking extended more than $580 million in new credit comprised of credit cards, loans and lines of credit to more than 35,000 customers.

Nonetheless, the bank officials foresees a difficult challenges to keep up the performance from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect the business for the rest of the year and into 2010