Bank of America (BAC) blew away Street estimates this morning, reporting EPS of $0.72 on $20.32 billion in revenue against estimates of $0.53 per share on $18.37 billion in revenue.
Key Figures:
- Net income up from $1.21 billion in Q1 to $3.41 billion, but fell 44% from the same period a year earlier.
- $2.2 billion added to loan loss reserve.
- Net charge-offs up again: $3.62 billion, or 1.67% of total average loans and leases compared with $2.72 billion, or 1.25%, in the first quarter and $1.50 billion, or 0.81%, in the second quarter of 2007.
- Nonperforming assets $9.75 billion or 1.13% of total loans, leases and foreclosed properties, compared with $7.83 billion, or 0.90%, at March 31 and $2.39 billion, or 0.32%, at June 30, 2007.
- Tier 1 capital ratio was 8.25%, up from 7.51% at March 31, 2008... down from 8.52% a year earlier.
- $645 million write-down in CDOs and Subprime net of hedges
- $236 million writed-down in commercial real estate
Press release is here.
We will be covering BAC's conference call at 9:30 AM Eastern here live.
Conference Call Notes (Note: Material appearing in quotes is paraphrased and is not verbatim.)
09:28: Irritating jazz music playing...
09:33: Usual introductory remarks and disclaimers about forward looking statements...
09:35: Ken Lewis: "It is clear to me that many investors see economy getting substantially worse... we too are sensitive... but we do not see the economy slipping into prolonged downturn. See stabalization later this year and recovery in 2009. Market has painted industry with broad brush. Most of our business performing very well. Our revenue streams are sustainable. Current losses still going up, but are manageable."
09:37: Lewis: Stop dissing Countrywide deal, its doing better than press is reporting.
09:39: Net Chare-Offs rose to $3.6 billion. Credit costs remained at high levels as a result of continued weakness in housing market.
09:40: Excluding impact of Visa related transactions, earnings improved 11%.
09:42: Average retail deposits of $528 billion, up 12% qoq and 1.4% yoy.
09:45: "concerned about economy, but encouraged by resiliency of customers. Action from fed and treasury, and recovery in housing market will improve situation. Growth will recover in 2009. Countrywide financial economically attractive in both long-term and short-term. Tier 1 ratio will sink in next quarter below 8% as a result of Countrywide."
09:46: Dividend will be maintained. (Get ready for snarky comment from Meredith Whitney).
09:48: CFO Joe Price takes over.
09:49: Leveraged Lending exposure down from March to $10 billion on cash sales.
09:50: Super senior subprime exposure down from $5.9 billion to $3.5 billion. Super senior nonsubprime exposure net of insurance down from $3.4 billion to $3.3 billion.
09:52: Increased delinquencies and losses in credit cards from 5.1% to 5.9% partly "seasonal."
09:54: Credit quality decreasing, especially in trouble states like Nevada and California. Small business net loss ratio increased 222 basis points to 9.53%.
09:55: Net charge-offs will continue to rise.
09:58: Net Loss ratio climbed 137 basis points from Q1 to 3.08%. Net loss ratio up 13 basis points in residential mortgages from Q1 to 0.23%.
10:00: Countrywide lost $2.3 billion in 2Q. Merger related expense still $1.2 billion after tax. Cost savings will be greater than original estimae. $900 million after tax in 2011.
10:02: Tier 1 capital up. We've reduced risk-weighted asset by $30 million.
10:07: BAC assuming 25% to 30% peak-to-trough decline in house prices.
10:09: Countrywide has $125 billion in risk-weighted assets, BAC tried to sell some of it, but market wasn't "conducive," so idea tabled.
10:11: Countrywide acquisition will be accretive by end of this year.
10:14: Will not guarantee Countrywide public debt, but "understand implications" of not paying it. (Whatever that means...).
10:14: Q&A begins. Meredith Whitney asks about credit quality, color for commercial credit quality and for Lewis' perspective on government intervention in finance... Answer: "Our first and foremost goal is to keep people in their homes." Foreclosures increasing and accelerating. Lewis thinks that bailouts are "necessary." No larger systemic risk than GSEs. "I don't pay as much attention to rest of industry. I don't know what is happening at other instiutions. What we see is manageable. Things are improving sequentially. We have ray of optimism now that we haven't had for a few quarters."
10:21: Deutsche Bank analyst asks what weakest area is besides real estate, asks what has gotten better to justify keeping dividend... Answer: Increase in charge-offs are manageable. Earnings tripled (sequentially), that's what changed.
10:25: NAB research analyst asks whether Paulson and Bernanke are soliciting advice from bank CEOs for input... Answer: Yes, they are. Talked to Paulson on Saturday morning. They are "Broad-minded."
10:30: Merrill analyst asks why commercial loan loss reserve was flat quarter-over-quarter given increase in criticized exposre... Answer: We built reserves agressively in previous quarters. Needed to reallocate reserves to other areas. Reserve is $17 billion and we are confident in it.
10:37: Lehman analyst asks about Lewis's comment that non-perfomers will peak in Q3... Answer: "I've never talked about non-performers." Sees credit quality deterioration peaking in Q109 at latest.
10:43: Morgan Stanley analyst asks about Countrywide comment earlier when Price said that BAC "understand ramifactions" of not paying Countrywide debt... Answer: Have nothing more to say.
10:45: RBC analyst ask about earlier comment that consumer charge-offs will peak in Q109 and how BAC can justify that comment... Answer: View on charge-offs consistent with our view of economy.
10:55: Call Ends...
