2011 Q1 Earnings: Bank of America EPS Disappoints; Merrill Profits Up 68.6%

Global Wealth & Investment Management unit shores up profits as mortgage loans weigh on BAC

Bank of America (BAC) on Friday reported first-quarter 2011 net income of $2.0 billion, or $0.17 in earnings per diluted share, disappointing analysts’ expectations for EPS of $0.28, as the bank continued to work out the bad mortgage loans it took on after acquiring Countrywide Financial.

Profits were off 36% versus Q1 2010, when BAC earned net income of $3.2 billion. The bank’s quarterly performance a year ago came in at EPS of $0.28 on net income of $3.2 billion. This quarter showed improvement over Q4 2010, however, when net income showed a net loss of $1.2 billion, or $0.16 per diluted share.

But higher asset management fees from the Merrill Lynch unit and investment banking fees as well as lower credit costs and gains from equity investments positively affected results for the most recent quarter. But along with higher legacy mortgage-related costs, these positive earnings results were offset by higher litigation expenses and lower sales and trading revenue. Late Thursday, the company said it would cut 1,500 jobs in its mortgage-origination business.

“Strong growth in deposit balances and positive contributions from five of our six businesses reflect the steady improvement in the broader economy,” said CEO Brian Moynihan in a statement. “Our customer-focused strategy is working well, and we also benefited from improved credit quality. “

Global Wealth and Investment Management (GWIM) reported one of its strongest quarters since the acquisition of Merrill Lynch, setting records for revenue, asset management fees and brokerage income, Bank of America reported in its Q1 2011 earnings release. In addition, the business more than doubled long-term asset management flows and added 184 financial advisors since the end of 2010 through a combination of new hires and high advisor retention rates.

Merrill Lynch profits stood at $531 million, up 68.6% quarter-over-quarter and up 22.4% year-over-year. Revenues totaled $3.54 billion compared with $2.99 billion a year ago, for a gain of 18.5%. Merrill Lynch client balances stood at $1.55 trillion versus $1.45 trillion in Q1 2010, 6.9% higher. Quarter-over-quarter revenues were 3.3% higher from Q4 2010’s $3.43 billion.

The number of financial advisors at Merrill Lynch keeps growing and now stands at 15,695 compared with 15,511 in Q4 2010 and 15,178 a year ago at this time. Financial-advisor yearly production, or fees and commissions, rose to $931,000 per advisor in the first quarter from $913,000 in the previous period.

Average assets under management per FA grew to $99 million in the first quarter of 2011 versus $98 million in the fourth quarter of 2010 and $95.5 million in the same year-ago quarter. 

While the rebounding markets deserve some credit for this performance, says executive-search consultant Mark Elzweig, Merrill’s executives and advisors also should be recognized for their contributions to the latest results. “It’s all systems go for Merrill. They’ve been successful at recruiting, and their productivity is up,” Elzweig said in an interview with AdvisorOne on Friday.

Mark Elzweig“The bull market and the improving economy put the winds at the back of Wall Street brokerages,” Elzweig (left) added. “Once we see the other wirehouses’ first-quarter results , we’ll be able to put these [Merrill] numbers in their proper context.”

Bank of America Merrill Lynch ranked No. 2 in both global and U.S. investment banking fees for the first quarter of 2011, with a market share of 7.9% and 12.3%, respectively, according to Dealogic. The global market share improved by 1.6 percentage points from Q4 2010 and was the largest increase among the top 15 banks, according to Dealogic.

To be sure, GWIM’s strong performance along with those of commercial banking and credit cards helped offset the nation’s biggest bank’s struggle to resolve mortgage woes that it took on with the $4 billion acquisition of subprime mortage lender Countrywide in July 2008.

Since the start of 2008, Bank of America and previously Countrywide have completed 840,000 loan modifications with customers. During the first quarter, more than 64,000 loan modifications were completed, a 17% decrease from the total modifications in the first quarter of 2010.

For more information on earnings read AdvisorOne’s 2011 Q1 Earnings Calendar for the Financial Sector.

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