BankAmerica Corp. Reports Disappointing Earnings Amid World Financial Turmoil

Strategic Insights -

The merged bank, created from NationsBank and Bank of America, released its first quarterly earnings report since the merger, which contained a plethora of bad news, mainly attributed to the old Bank of America. The new entity reported operating profits 50% below last summer's levels, with third-quarter earnings of 21 cents per share, down from 99 cents in the same period last year. This came despite setting aside an additional $519 million for merger-related expenses. The bank's stock plummeted 11% on the news, with the company's shares closing at $48.06.

Key Takeaways:

  • The merged bank, BankAmerica Corp., reported operating profits 50% below last summer's levels, with third-quarter earnings of 21 cents per share.
  • The bank took a $250 million loss in the old Bank of America mortgage servicing business and a $500 million provision for future loan losses in overseas markets.
  • A single $372 million loan to the hedge fund D.E. Shaw & Co. was written off, with the bank still having a $1 billion investment in the fund, which is being restructured.
  • Bank officials stated that there was no reason to believe loan losses would become a trend, with loan losses expected to return to low levels of recent years.
  • First Union Corp. in Charlotte, N.C., reported $1 billion in operating earnings, up 35% from the same period a year ago, with per share earnings up 31% at $1.02.
  • First Union recorded a $148 million loss in its loan securitization business but made up for it with a gain on its Treasury securities portfolio, reporting gains of $211 million.

Statistics:

  • Third-quarter operating profits: 50% below last summer's levels
  • Third-quarter earnings: 21 cents per share down from 99 cents last year
  • Loss from old Bank of America mortgage servicing business: $250 million
  • Provision for future loan losses in overseas markets: $500 million
  • Loan written off to hedge fund D.E. Shaw & Co.: $372 million
  • Bank's investment in D.E. Shaw & Co.: $1 billion
  • BankAmerica Corp.'s stock price drop: 11% to $48.06
  • First Union Corp.'s operating earnings: $1 billion, up 35% from last year
  • Per share earnings at First Union Corp.: 31% increase to $1.02
  • First Union Corp.'s gains on Treasury securities portfolio: $211 million
  • Loss in loan securitization business at First Union Corp.: $148 million

Sources:

  • The Baltimore Sun, "BankAmerica Corp. reports disappointing earnings; Turmoil in financial markets affects other banks"
  • Associated Press, "BankAmerica Corp. reports $250 million loss in mortgage servicing business"