BofA Profit Off 63% as Wealth Unit Doubles Its Earnings

Bank of America wealth unit, which includes Merrill Lynch, sees its net margins top 20% as its advisor headcount dips slightly

Bank of America headquarters, Charlotte, N.C. (Photo: AP) Bank of America headquarters, Charlotte, N.C. (Photo: AP)

Bank of America (BAC) reported a 63% drop in net income on Thursday of $732 million, or $0.03 per share, for the fourth quarter of 2012, compared with $1.991 billion, or $0.15 per share, in the year-ago period. This tops equity analysts' estimates by $0.01 per share.

Revenue for the quarter, net of interest expense, on a fully taxable-equivalent (FTE) basis was $18.9 billion vs. $25.2 billion a year ago. Fourth-quarter 2012 revenue, net of interest expense and excluding $0.7 billion of debit valuation and fair value option adjustments, was $19.6 billion. Subtracting $3 billion of provisions for representations and warranties and obligations tied to mortgage-insurance issues, arising from settlement agreements with Fannie Mae, revenue (net of interest expense) was $22.6 billion.

Analysts had forecast sales of $21 billion.

"We addressed significant legacy issues in 2012, and our strengths are coming through," said Chief Financial Officer Bruce Thompson, in a press release. "Capital and liquidity remain strong and credit continues to improve. Our primary focus this year is to grow revenue, manage expenses and drive core earnings growth."

Global Wealth & Investment Management

The unit, which includes Merrill Lynch, saw its net income more than double to $578 million for the fourth quarter from $272 million a year ago. Quarterly revenue increased 6% year over year and close to 3% from the prior quarter to nearly $4.2 billion, “driven by higher asset-management fees due to higher market levels and long-term [assets under management] flows, as well as higher brokerage transactional revenue.”

For the full year, net income jumped almost 30% to $2.2 billion from $1.7 billion in 2011. Sales in the wealth-management operations were up $22 million to  roughly $16.52 billion in 2012.

Merrill Lynch boosted quarterly sales by nearly 3% from the third quarter and by almost 9% from the year-ago period to almost $3.53 billion.

The full wealth-management unit's pretax margin was 21% for both the fourth quarter of 2012 and full-year 2012, up from 11% in the year-ago quarter and 16% for the full-year 2011.

As for the movement of assets, some $11.7 billion moved into the unit during the quarter, up from $3.9 billion in the previous quarter and $5.8 billion in the year-ago period. The company says the long-term asset flows in Q4 were $9.1 billion (up from $5.8 billion in Q3'12 and $4.8 billion in Q4'11) were the 14th consecutive period of positive momentum in this area for the wealth-management unit and the 15th consecutive quarter of positive long-term AUM flows for Merrill Lynch.

The number of advisors is down to 16,413 from 16,784 in September and 16,457 a year ago, mainly due to the attrition of underperforming employees in Practice Management Development, according to BofA. Including the Merrill Edge advisors, who are part of BofA's Consumer Business & Banking unit, there are 20,408 client-facing professionals in the organization, down from 20,832 in Q3 and 20,841 in Q4'11. U.S. Trust operations include 2,077 reps.

The level of productivity, or average annual fees & commissions for Merrill Lynch advisors—but not Merrill Edge reps—improved in the fourth quarter to $935,000 vs. $903,000 in the prior quarter and $872,000 a year ago—increases of 3.5% and 7.6% respectively.

Productivity was $1.3 million for Merrill advisors, excluding those in the Practice Management Development group, in Q4, the company points out.

Still, for the full year, FA productivity—including the PMD reps—dropped to $909,000 from $938,000 in 2011.

Client balances rose 7% from the year-ago period to $2.17 trillion "driven by higher market levels and net inflows, driven by client activity in long-term AUM, deposits and loans," says BofA. Assets under management ticked up $62.5 billion from the fourth quarter of 2011 to $698.1 billion, "driven by higher market levels and long-term AUM flows."


Check out the Q4 2012 Earnings Calendar on AdvisorOne.

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