Is Bank of America's 'profit' really hiding a loss?

Bank of America Corp. this morning said it earned $2.4 billion in the second quarter, but the results included a number of one-time gains from asset sales that helped the bank post a profit, analysts noted.

Stifel Nicolaus analyst Chris Mutascio said, by his estimate, these items buoyed earnings by $3.8 billion, eclipsing the bank's profit of $2.4 billion.

"Thus, if we back out the gains the company could have posted a loss," Mutascio wrote in a report Friday.

Profit was down 25 percent compared with the year-earlier period.

After a loss in the fourth quarter of 2008, the bank has now reported two straight positive periods. In the first quarter, the bank posted net income of $2.8 billion applicable to common shareholders.

With diluted earnings per share of 33 cents, the Charlotte bank beat the estimate of analysts polled by Thomson Financial by 5 cents per share. Around 11 a.m., the banks shares had fallen about 1 percent to $13 after being up earlier in the day.

In a wobbly economy, Bank of America remains pressured by rising loan losses. The bank set aside $13.4 billion as a cushion against bad loans, up from $5.8 billion last year but flat with the first quarter. Nonperforming assets increased to nearly $31 billion from about $26 billion in the first quarter.

In a conference call with analysts this morning, Bank of America chief executive Ken Lewis said the bank likely will need to continue adding to its loan loss reserves the rest of the year, but not at the levels of the first two quarters. The company is seeing "a lot of business activity" in the economy but still expects the national unemployment rate to peak at 10 percent.

Lewis also said the bank is in discussions with the government about paying back the $45 billion it has received from the Troubled Asset Relief Program. He said he expects the bank would have to pay the money back in installments but offered no timeframe other than his preference of "sooner rather than later."

The Jan. 1 acquisition of investment bank Merrill Lynch & Co. boosted Bank of America's global banking and markets operations, with profits more than doubling in the second quarter to $3.9 billion from a year ago. That purchase has drawn regulatory and congressional scrutiny but has allowed the company to benefit from revived financial markets.


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