BofA Posts Loss; Wealth Group Profit Slows: Q1 Earnings

The bank’s earnings are hit by mortgage issues, and advisor-related net income drops from Q4.

CEO Brian Moynihan of Bank of America. (Photo: AP) CEO Brian Moynihan of Bank of America. (Photo: AP)

Bank of America (BAC) said Wednesday that it lost $276 million in the first quarter of 2014, compared with net income of $1.5 billion a year ago. Revenue (net of interest expense) declined 3% year over year to $22.8 billion.

The company notes that these results include $6.0 billion in litigation expense related to a settlement with the Federal Housing Finance Agency (FHFA) and additional reserves tied to legacy mortgage-related matters.

"The cost of resolving more of our mortgage issues hurt our earnings this quarter,” said CEO Brian Moynihan, in a press release. “But the earnings power of our business and customer strategy generated solid results, and we continued to return excess capital to our shareholders."

Wealth Results

BofA’s Global Wealth and Investment Management unit, which includes Merrill Lynch and U.S. Trust advisors, had revenues of $4.55 billion, up about 3% from the year-ago quarter and a 1.6% improvement from the fourth quarter.

Net income was $729 million, up 1% from a year earlier and down 6% from the earlier quarter. The unit’s return on average allocated capital in the period was 24.74, down from 29.41 a year ago and 30.99 in Q4’13. Its pretax profit margin was 25.6%, down from the prior quarter’s 26.6%.

BofA says asset management fees rose 18% year over year to $1.9 billion. Client balances grew about 1% from the prior quarter and 7% from last year — by about $29 billion — to $2.4 trillion, reflecting about $12 billion in flows and $16 billion in market improvements.

Long-term asset flows for Q1 totaled $17.4 billion versus $9.4 billion a year ago and $20.4 billion in Q4. The level of loan balances, including margin loans, grew 10% year over year to $120 billion, excluding migration.

Mother Merrill

The total level of client assets in Merrill Lynch accounts stood at $1.95 trillion versus $1.92 trillion in the prior quarter and $1.81 trillion a year ago, and the group’s revenue for Q1 was $3.76 billion — compared with $3.70 billion in Q4 ’13 and $3.68 billion in Q1 ’13.

The company says asset management fees totaled about $1.5 billion in the period, up 21% from the year-ago quarter.

The number of financial advisors, though, dropped by 47 to 13,725 for the quarter, primarily driven by continued attrition of  underperforming advisor trainees in its Practice Management Development program.

Advisor productivity, or yearly fees and commissions, were $1.3 million per experienced advisor; total advisor productivity is roughly $1.06 million as of Q1 ’14, up from $1.04 in Q4 ’13 and $971,000 in Q1 ’13.

“As of March, 45% of our advisors had 50% or more of their client assets under a fee-based relationship,” the bank said in a statement.

The company notes that one-third of Merrill revenue comes from brokerage operations, one-third from fee-based business and one-third from net interest income from deposits and credits.

The Merrill Lynch One platform now includes some 98,000 accounts with $32 billion in assets. Some 5,000-plus advisors in five areas of the country have access to it.

“Feedback on the platform is positive with trends in the adoption of investment discipline through the leverage of firm traded models and an increase in [net new assets] in transitioning relationships,” BofA said in a statement. It adds that it is “on track to complete deployment of the new platform by Q3’14 across Merrill Lynch Wealth Management.”

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