NEW YORK — Bank of America said Wednesday that it narrowly turned a profit from July through September - a report good enough to beat Wall Street expectations.
The country’s second largest bank earned $340 million in the most recent quarter, which works out to a fraction of a penny per share. Financial analysts expected an 11-cent per share loss, according to a poll by FactSet, a data provider.
Profits were hurt largely because of a settlement with shareholders who accused the bank of misleading them when it decided in 2008 to purchase Merrill Lynch. The bank took a $1.6 billion charge to help pay for the settlement.
Profits also were hurt by a contentious accounting rule that eats into bank profits when the value of their corporate debt rises because the bank would have to pay more to buy back that debt on the open market.
Critics say the rule is confusing and punishes banks for success, and it could be phased out next year. The accounting rule forced Bank of America to take a $1.9 billion charge in the quarter.
Without those special items, revenue was essentially flat at $22.5 billion, beating the expected $21.9 billion.
It’s difficult to compare the results with those from the third quarter of 2011, because that period was also riddled with one-time gains and losses.
The bank made $6.2 billion then, which makes it look like the profits this quarter plunged. But the profit a year ago was driven by a gain from the accounting law and the bank’s sale of part of its investment in a Chinese bank.
But by other measurements, that was a poor quarter for the bank. Investors were fleeing the stock market, unnerved by a downgrade of the U.S. government’s debt and a congressional standoff over the national budget.
Bank of America stock finished down 2 cents at $9.44 per share in trading Wednesday.
Chief Executive Officer Brian Moynihan is trimming Bank of America, a departure from his empire-building predecessors, and working through problem mortgage loans that the bank inherited when it bought Countrywide in 2008, before Moynihan became chief executive.
“Our strategy,” he said in a statement, “is taking hold even as we work through a challenging economy and continue to clean up legacy issues.”
He noted that deposits, mortgage originations and small business lending all rose: “We are doing more business with our customers and clients.”
Bank of America’s chief financial officer said Wednesday he thought the housing market had turned, noting that home prices are rising more consistently. His statements echoed what JPMorgan Chase and Wells Fargo, the country’s two largest mortgage lenders, suggested last week.
“I think we’ve clearly begun to turn the corner,” Bruce Thompson said in a conference call with reporters to discuss the bank’s third-quarter earnings.
Bank of America reported Wednesday that its mortgage originations jumped compared with a year ago - up 18 percent to $21 billion. But the mortgage unit still lost money as the bank worked through problem mortgages issued before the crisis.
Refinancing made up the bulk of most mortgage growth at banks around the country this quarter - at Bank ofAmerica, it accounted for 83 percent.
Still, Thompson noted that any recovery is tenuous. He said he’d remain “a little bit cautious because there are head winds out there.”
“‘It’s obviously early in the cycle with home prices moving up,” Thompson said. “There are obviously certain questions that remain in the economy with respect to other matters.”
Bank of America is also, like many of its peers, cutting jobs and expenses to weather an uncertain economy. The bank shed more than 16,100 jobs from a year ago, or about 6 percent of its work force.
The decrease would have been greater if the bank hadn’t added extra employees to work through troubled mortgage loans. The bank also trimmed spending on occupancy, equipment, marketing and other expenses.
Business, Pages 29 on 10/18/2012