Bank of America "Earnings"

By
Real Estate Broker/Owner

How can a bank lose money when they can borrow at 0% and lend at 5%?  Most won't lose money, and Bank of America was no exception when it released its second quarter earnings this past week, but they came close.

A couple of things from a Reuters report that are worth pointing out:

First, "Results included a $5.3 billion pre-tax gain from the sale of one-third of the bank's stake in China Construction Bank Corp".

Second, "Second-quarter net income applicable to common shareholders fell 25 percent to $2.42 billion".

When you add these numbers up you can see that Bank of America was profitable because they are selling assets.  Unfortunately selling assets negatively impacts the potential for growth moving forward, Jim Cramer.

Third, what is more alarming is that, "Nonperforming assets surged 21 percent to $30.98 billion" from the previous quarter.

CEO Ken Lewis was quoted as saying, "Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010".

When you connect the dots what this reveals is that Bank of America has some significant challenges ahead of them.  Not only are they selling good assets in order to turn a profit, but the number of bad assets that they have are surging.  Additionally, the revenue that they have produced from the mother of all refinance booms is unsustainable.  Their profitability moving forward remains clouded and will be complicated by a deteriorating housing market that saw foreclosure filings surge 33% year over year according to RealtyTrac.

 

Comments (11)

Betina Foreman
WJK Realty - Austin, TX
Realtor, C.N.E., with WJK REALTY

BOA just gave me a 4% transaction fee for my 15 years of loyal and never late status. Hmmm maybe its time to switch?!? Whats next??

Jul 18, 2009 02:18 AM
Tim and Pam Cash
Crye-Leike (Sango) - Clarksville, TN
Real Estate Professionals - Clarksville TN

Mark, the most disturbing (besides the billions they got from you and I) is that China is quietly buying up American Corporations.

Jul 18, 2009 02:21 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Morning Mark,  Good analysis of the basics behind the headlines.  All I read was the total gross profit.

Jul 18, 2009 02:24 AM
Robert Ott
Century21 Beal Inc. - College Station, TX

Mark - It would be great if we could operate our business like the banks; "If we (banks) get in trouble due to bad decisions Uncle will bale us out".

Bill - I fell into the same mode; After reading your entry I immediately thought, "ENRON"!

Jul 18, 2009 02:42 AM
Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

I bet they pay little tax on the money they made. You are correct in that they most likely had little operating income.  They do not have my trust. Put your money to work in a local bank.

Jul 18, 2009 03:17 AM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Hi Mark

Your points are right on the money about Bank of America.

Good luck and success.

Lou Ludwig

Jul 18, 2009 04:25 AM
Brian Griffis
Realty Choice - Springfield, MO

Just goes to show you that our accounting system leads to all types of misconceptions and bad interpretations.  You have to look elsewhere to see if a company is truly succeeding or not, but earnings reports are full of items that distort the true nature of how a company is doing.  I was lucky to have a finance professor that wrote a book on the subject. Earnings that are reported are truly meaningless.  They have no relation to the true health of a company.  

Jul 18, 2009 05:15 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Mark-  Excellent quick blog!  I liked it, considering I used to work for the National Lender that BOF A purchased!  :)  ANyway, two quick things to retort...One, did you know Bank of America TRIED to pay back the money they borrowerd thru TARP, and can you verify this for us??  The reason I ask, is that I was told by my father who follows this, that the OBAMA administration refused to accept their repayment, until next year.  Their excuse, was because they didnt have a vehicle to accept repayment!  WOWSERS!

Secondly,  while i used to work for the other nationally known lender, we wer instructed, as well as I TRAINED all my LO's, to NOT rely on REFI's, and to push their business towards purchase!  this builds in REFI"S for them later, and sustains them thru the bad times!  That said, what Ken Lewis NOT telling you, is that Bank of America is just one more example of EVERYTOWN BANK, every where!  They expect business to walk in the door, because they are/were a bank!  Mortgage Bankers do not, and this is ONE MORE REASON TO USE mortgage bankers!

The information you gave is telling!  -  Thanks  Bucky....Darin

Jul 18, 2009 10:25 AM
Mark MacKenzie
Phoenix, AZ

Betina:  Sounds like a good time to make a switch. :)

Tim & Pam:  I have read this as well.  And B of A is selling their stakes in Chinese businesses.

Bill:  Thank you, that is what most people read.  There is usually an interesting story in these earnings reports.

Robert:  I am still waiting on the status of my bank holding company application. :)

Jul 18, 2009 10:45 AM
Mark MacKenzie
Phoenix, AZ

Eric:  I don't believe that what litle operating income that they did have is sustainable.

Lou:  Thanks :)

Brian:  Well said.  Earnings and the potential for future earnings are not always in line with one another.

Darin:  I do understand that Bank of America has raised the amount of capital that the Treasury requested per the bank stress test.  I also understand that the government has been reluctant to allow BofA to repay TARP.

The government has accepted re-payment by a couple of banks already.  I think JPMorgan and Goldman were two of them.

I think the government is reluctant to allow BofA to repay TARP because they are seeing the same thing we are seeing, a company that has deteriorating assets relative to capital reserves.

The government knows that their stress tests, much like their stimulus plan, have underestimated this crisis, they don't want to admit this though. 

Jul 18, 2009 10:52 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Mark, it's always interesting to get the other side of the story. Thanks for posting this.

Sharon

Jul 19, 2009 03:38 PM