BofA’s profit beats some estimates as capital levels improve

Mortgage Costs

After preferred dividends, Bank of America showed a net loss for the quarter of $33 million, according to today’s statement. In home mortgages, losses could be as much as $6 billion above accruals on demands that the firm repurchase shoddy loans, compared with previous guidance of $5 billion for a smaller set of demands. The bank was able to reach the projection “as the result of continued dialogue” with Fannie Mae and Freddie Mac.

Net income for consumer and business banking was $1.3 billion, down $379 million, even as average deposits rose 3 percent. The bank reported sales and trading revenue increased to $3.2 billion from $1.3 billion a year earlier excluding the impact of debt-valuation adjustments, and was little changed from the second quarter. Mortgage originations increased 18 percent, the company said, with consumer real estate narrowing its net loss to $877 million from $1.1 billion.

The U.S. housing market is starting to improve with prices moving “in the right direction,” Chief Financial Officer Bruce Thompson said today. “We’ve clearly begun to turn a corner,” he told reporters on a conference call.

Merrill Reserve

Bank of America set aside part of the cost of the Merrill deal in advance and incurred more legal expenses during the quarter. The company denied misleading investors over Merrill’s health and said resolving the class-action suit was in the best interests of current shareholders.

Accounting rules can require companies to book losses when the market price of their bonds increases or a profit when the price falls, reflecting the hypothetical cost to repurchase and extinguish the debt.

Analysts often discount such adjustments because the cost remains theoretical unless the company conducts a buyback. Bank of America has been on a campaign to reduce interest costs since last year, cutting long-term debt by more than $120 billion in the 12 months ended June 30 through redemptions and by not replacing debt that matures.

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