Despite its bottom line being back in the black after two dire quarters, Bank of America still missed analysts’ estimate on earnings as its mortgage-related activities drag on profits.
Earnings per share from continuing operations (diluted) trailing twelve months (TTM) fell this quarter (see chart below) as the bank settled more claims on faulty mortgages. The bank’s profitability is still lagging far behind previous levels, but is also low compared to competitors such as JPMorgan Chase & Co.
Not only does it face problems in its mortgage business but also declining net revenues TTM (see chart below), which have seen negative growth year-over-year since the fourth quarter of 2010. To make things worse, if you subtract the change in loan loss reserves, normalised net income would have been negative - so the underlying business is still problematic. Bank of America is also the only one of the big banks that has not been allowed by the Fed to increase their dividends to shareholders.
Overall, Bank of America has a lot of operational slack (mainly in their mortgage business) that needs to be optimised and solved. The banks net revenue and earnings have not yet stabilised as one off items continue to negatively surprise investors. It will be a turbulent journey for the bank going forward.
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