Bank of America battles revenue decline

Bank of America put hefty legal costs of the past year behind it to swing into profit for the first quarter of 2015 but revenues at the second-biggest US bank by assets slipped by 6 per cent.

Net income came to $3.4bn, slightly lower than analysts' estimates, with total revenues falling $1.3bn from the previous year's $22.8bn, crimped by continued low interest rates and sluggish fees from the core consumer and global banking businesses.

Brian Moynihan, chairman and chief executive, is trying to put the bank on the front foot after years of fines and regulatory snarl-ups.

Most were related to the acquisitions of Merrill Lynch, the brokerage, and Countrywide, which was one of the most aggressive of mortgage originators in the years leading up to the financial crisis. That latter deal, done for $4bn* in January 2008, has been a particular drag on BofA, causing its shares to underperform peers and prompting some investors to call for a break-up.

At this time last year, BofA reported its first quarterly loss in almost three years as it took a $6bn hit related to previously disclosed law suits

On a call with analysts on Wednesday, Mr Moynihan said that the bank was now "98 or 99 per cent through" with residential mortgage-related legal settlements but remained exposed to ongoing legal action connected to foreign exchange and Libor manipulation.

Meanwhile, the bank has struggled to satisfy regulators that executives have a strong enough grip on its sprawling operations, despite more than $73bn of divestments under Mr Moynihan since 2010.

BofA was the biggest casualty of the Federal Reserve's annual round of stress tests last month, ordered to resubmit its capital plans by September after the Fed found fault with the bank's loss calculations and revenue projections in an extremely stressed financial environment.

Analysts said that first-quarter revenues were weaker than they had expected, despite bright spots such as a big pick-up in new mortgages and higher asset management fees from the wealth division.

The bank explained that nearly $1bn of the $1.3bn drop in revenues was due to a fall in equity investment income after a sale in the previous year, and the profit-sapping effects of lower longer-term interest rates on the bank's debt securities portfolio. Excluding those items, along with gains in the market value of the bank's own debt - which forces the bank to record losses - the year-on-year drop in revenues was much milder at 1 per cent, the bank said.

But Brennan Hawken, an analyst at UBS, noted that such "market-related adjustments" had been a headwind for BofA in each of the past five quarters, and that investors were growing more reluctant to "give a bit of a pass and look through some of it."

The overall results, he said, were evidence that it is "hard to make money on a mass-market banking platform" amid a regulatory squeeze and still-weak income growth across America's middle classes.

Shares in the bank were down about half a per cent by lunchtime in New York on Wednesday, bringing the total fall for the year to 12 per cent. The banking sector is down just 1 per cent over that period.

* This article has been amended from the original to correct the deal figure

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