BofA says quarterly profit quadruples as mortgage costs ebb

Bank of America Corp., the second-biggest U.S. lender, posted quarterly profit that more than quadrupled and beat Wall Street estimates as the company quelled claims tied to defective mortgages. The stock rose 3.6% to its highest level in more than three years.

Fourth-quarter net income rose to $3.44 billion, or 29 cents a diluted share, from $732 million, or 3 cents, a year earlier, according to a statement today from the Charlotte, North Carolina-based firm. The average estimate of 27 analysts surveyed by Bloomberg was 27 cents, adjusted for one-time items. For the full year, profit more than doubled to $11.4 billion.

Chief Executive Officer Brian T. Moynihan, 54, has spent his four years atop Bank of America resolving disputes tied to shoddy home loans and foreclosures, mostly from his predecessor’s 2008 takeover of Countrywide Financial Corp. He signaled in November that attention is shifting from the mortgage cleanup to improving performance at operating units, calling his firm a “huge battleship” that is gaining speed.

“They’re looking considerably better than a year ago,” said Marty Mosby, a bank analyst at Guggenheim Securities LLC with a neutral rating on the stock. “The Street now believes their story, which is that remaining mortgage costs will be manageable.”

Shares React

Bank of America advanced to $17.38 at 10:15 a.m. in New York, its best level since May 2010. The lender gained 34% last year, just under the 35% advance of the KBW Bank Index, and it’s leading the 24-company benchmark this year with gains of almost 12%. Analysts including Citigroup Inc.’s Keith Horowitz upgraded the firm to a buy in anticipation that costs will recede.

The bank showed improvements in various performance gauges as revenue in the quarter rose 14% to $22.3 billion, excluding accounting charges. Adjusted net interest income increased 4%, according to the bank, and non-interest income jumped 28% as costs eased for refunds to investors on defective mortgages.

The net interest margin, the difference between what a bank pays for funds and what it earns on loans and investments, improved to 2.56% from the 2.44% reported in the third quarter and 2.35% a year earlier.

The return on average shareholder’s equity was 5.74% in the fourth quarter and 4.62% for the full year. That’s less than the company’s managers would like, Chief Financial Officer Bruce Thompson told analysts during a conference call. By contrast, Wells Fargo & Co. reported a 13.8% ROE for the quarter and JPMorgan Chase & Co.’s was 10%.

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