Bank of America(BAC) announced third quarter earnings today. I paid particular attention to the announcement because I have a pretty sizable position in the banking stocks. Bank of America has been one of the worst performing stocks in the market during the past year as shares are barely trading above $6 per share. I have hung in there with the bank despite several missteps because my average purchase cost is so low. So, how did the banking giant fare today?
Bank of America Third Quarter Earnings
Bank of America actually came out ahead of expectations and reported total revenue of $28.7 billion dollars. The company had net income of $6.2 billion dollars, A large part of its profitability can be attributed to the sale of China Construction Bank. Bank of America gained $3.7 billion dollars from the one time transaction. The company had earnings of 56 cents per share. The quarter was pretty impressive when compared to the third quarter of last year. The bank had a loss of $7.3 billion dollars in Q3 of last year.
Despite the positive growth in earnings, there is still cause for concern. Bank of America lost $1.1 billion dollars in its home loans division. The housing market is still a mess and Bank of America’s mortgage market is showing it. Bank of America does not even need positive earnings from its loan portfolio to grow substantially. The bank could be an earnings giant if they could ever get their home loan portfolio to just report no losses.
Another cause for concern are the trading losses. After reporting robust trading gains in the early parts of 2010, Bank of America lost $300 million dollars on trades. This is not a huge catalyst for BofA but it does show that Goldman Sachs (GS) and Morgan Stanley (MS) may have a tough time meeting their earnings projections for the year.
All in all the results were positive for Bank of America and the bank appears to be on the right track. The bank is reducing its risk by ridding itself of risky assets and focusing on its core businesses. Bank of America is cutting staff to decrease operating costs and improve efficiency. Even the new debit card program will help the bank to raise revenue from the additional fees charged to accountholders.
Bank of America is still a risky investment because of the risk in the housing market and the chances of a double dip recession but it is a stock that I remain willing to take a chance on.