BofA Profit Feels Tax Sting -- WSJ

Net fell 48% in latest quarter on large write-down but bank offers an upbeat outlook

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (January 18, 2018).

Bank of America Corp. said a charge from the new U.S. tax law caused quarterly profit to fall by 48%, even as the bank ended 2017 with its crisis-era issues firmly in the past.

The Charlotte, N.C.-based bank on Wednesday reported fourth-quarter profit of $2.37 billion, or 20 cents a share. That was down from $4.54 billion a year earlier.

Without the $2.9 billion tax charge, however, the bank's profit would have risen to $5.3 billion, or 47 cents a share. Analysts polled by Thomson Reuters had expected earnings of 44 cents a share on an adjusted basis.

For the year, the bank posted a $21.1 billion profit, excluding the tax adjustment. That roughly matched the bank's all-time profit record from 2006, when it was a simpler consumer-focused firm that hadn't yet bought ailing mortgage lender Countrywide Financial Corp. or investment bank Merrill Lynch & Co.

The bank's executives said Wednesday that the 2018 outlook is bright. That is because the one-time hit from the tax bill is expected to be outweighed by the law's longer-term benefits.

The fourth-quarter charge was largely due to the bank writing down its deferred tax assets. These credits to offset future tax bills were created by past losses, in many cases huge ones racked up during the financial crisis. The assets generally lose value when tax rates fall.

The bank expects its effective tax rate for 2018 to be 20%, down from an expected 29% before the new tax law, Chief Financial Officer Paul Donofrio said on a call with reporters Wednesday morning.

Chief Executive Brian Moynihan said he expected most of the bank's benefit from the tax cut would go to shareholders, who should expect higher capital returns in the form of dividends or share buybacks. Some of it will be spent on investments. Mr. Moynihan also reiterated that he expected tax changes would eventually lead to more loan growth.

The benefits from the tax bill are expected to accelerate the progress Bank of America has made rebuilding its business after the financial crisis. As recently as 2014, the lender's results were dogged by tens of billions of dollars in penalties over financial-crisis era issues. Since then, the company's legal problems have eased, as Mr. Moynihan has made a concerted effort to cut costs and focus on safer businesses such as lending to consumers with good credit.

The boost from the tax bill will expedite the bank's timeline for meeting long-held performance goals of a 1% return on assets and a 12% return on tangible common equity, Mr. Moynihan said. Excluding the effect of the tax bill, those metrics stood at 0.9% and 10.9% in the fourth quarter.

The bank has recently had the help of rising interest rates, which are boosting profits. Bank of America's net-interest income was $11.46 billion, up about 11% from a year earlier. It paid slightly higher rates to depositors in the quarter, though holders of regular savings accounts are still getting almost nothing in interest. The rate the bank paid on U.S. interest-bearing deposits was 0.27%, compared with 0.24% in the prior quarter.

It also cut expenses to $54.74 billion on the year, coming closer to a $53 billion target the bank has set for 2018. Revenue for the year rose 4% to $87.4 billion.

There were still some hiccups in the quarter. One was a $292 million charge related to "a single-name non-U.S. commercial" client in the fourth quarter. A person familiar with the matter said this came from the bank's lending activity involving troubled firm Steinhoff International Holdings NV. JPMorgan Chase & Co. and Citigroup Inc. both took similar charges for loans involving the retailer, which is battling burgeoning financial problems after disclosing possible accounting irregularities.

Trading revenue was another weak spot, as it has been for other large U.S. banks including Goldman Sachs Group Inc. Excluding an accounting adjustment, Bank of America's trading revenue fell about 9% to $2.66 billion from $2.91 billion in last year's fourth quarter, though that was less than the bank initially predicted.

The lender's improving fortunes recently helped lift its stock above $30 a share for the first time since 2008. Shares are up more than 80% since the 2016 presidential election, when hopes for deregulation, tax cuts and rate increases sent stocks in the sector higher. Shareholders greeted Bank of America's latest results with caution, sending the bank's shares 0.8% lower in morning trading.

The bank had to issue so many new shares to deal with its crisis-era problems that per-share profits remain far below pre-2008 levels. And Bank of America still trades at a lower valuation than some competitors like JPMorgan Chase.

Write to Rachel Louise Ensign at

(END) Dow Jones Newswires

January 18, 2018 02:47 ET (07:47 GMT)