Bank of America Earnings Hit by New Tax Law, Trading Income Still Declining

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Bank of America Corp. (NYSE: BAC) reported fiscal fourth-quarter and full-year 2017 results before markets opened Wednesday. The big bank posted diluted earnings per share (EPS) of $0.20 on revenue of $20.4 billion. In the same period a year ago, it reported EPS of $0.40 on revenue of $19.99 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $0.44 on revenue of $21.53 billion.

For the full year, the bank reported revenues of $87.35 billion and EPS of $1.56, compared with 2016 revenues of $83.7 billion and EPS of $1.49. Analysts had forecast revenues of $88.97 billion and EPS of $1.80.

The bank took a fourth-quarter charge of $2.9 billion ($0.27 per share) related to revaluation of deferred tax assets resulting from the new U.S. tax law.

Credit loss provisions totaled $1 billion in the quarter, up by $226 million compared with the same period in 2016. Net charge-offs increased by $320 million to $1.2 billion, primarily driven by a single-name non-U.S. commercial charge-off totaling $292 million.

CEO Brian Moynihan said:

Pretax earnings rose 17 percent, and we continued to close in on our long-term return targets. We gained market share across our businesses while carefully managing credit, risk exposures, and expenses. We invested in technology, client engagement, and in our own team, including the $1,000 bonus we announced last month for 145,000 employees. We also shared our success with stakeholders through our high level of funding philanthropic initiatives, our 2 million employee volunteer hours, and our commitment to long-term shareholder value by returning nearly $17 billion in capital through common stock repurchases and dividends.

Noninterest expense declined $139 million (1%) to $13.3 billion, with reductions in both personnel and non-personnel expenses

The bank did not provide guidance in its earnings release. The consensus estimate for first-quarter EPS is $0.56 on revenues of $23.03 billion. For the full 2018 fiscal year, the consensus calls for EPS of $2.36 on revenues of $92.47 billion. Like all the big banks, Bank of America’s charge in the 2017 fourth quarter will be repaid handsomely by the drop in corporate tax rates for this year.

Sales and trading revenues in the bank’s global markets division fell by 10% year over year in the fourth quarter to $2.5 billion. Excluding debt valuation adjustments (DVA) sales and trading revenues declined 9% to $2.7 billion. Fixed income trading was down 13% for the quarter.

Shares traded higher by about 0.2% in the premarket Wednesday to $31.30. The current 52-week range is $22.07 to $31.79, and the high was posted Tuesday. Thomson Reuters had a 12-month consensus analyst price target of $32.28 before results were announced.