BofA Swings to 3Q Profit Amid Accounting Gains

Bank of America (NYSE:BAC) swung back into the black in the third quarter thanks in part to one-time accounting gains, but the banking giant also lost its place as the largest U.S. lender by assets.

Charlotte-based BofA said it earned $5.9 billion, or 56 cents a share, last quarter, compared with a deep loss of $7.6 billion, or 77 cents a share, a year earlier. The 2010 results included a massive accounting charge of $10.4 billion. Analysts had called for EPS of 19 cents.

Total revenue rose 6% to $28.7 billion.

Similar to several of its peers, BofA’s results were somewhat masked by quirky accounting gains tied to the declining cost of its debt amid the European sovereign debt crisis. BofA recorded $1.7 billion in pretax gains in trading Debt Valuation Adjustments, or DVA.

The bank also posted a $3.6 billion pretax gain related to its sale of shares in China Construction Bank as well as $4.5 billion in positive fair value adjustments on structured liabilities.

On the other hand, BofA suffered a $2.2 billion pretax loss tied to private equity and strategic investments

“This quarter’s results reflect several actions we took that highlight our ongoing transformation toward becoming a leaner, more focused company,” CEO Brian Moynihan said in a statement. “The diversity and depth in our customer and client offerings provided some resiliency in a very challenging environment.”

BofA said it continued to strengthen its balance sheet amid looming regulatory requirements for higher capital levels. Its short-term debt shrank by $17 billion, while long-term debit declined by $28 billion. Risk-weighted assets fell by $33 billion quarter-over-quarter and by $117 billion from the year before.

Amid those declining assets, BofA lost its top spot as the largest U.S. bank by assets to JPMorgan Chase (NYSE:JPM).

Underscoring improving credit conditions, BofA said its credit-loss provisions fell to $3.41 billion from $5.4 billion the year before but up from $3.26 billion at the end of the second quarter. Its card services’ provision for credit losses fell by $2 billion from a year earlier to $1 billion.

Shares of BofA rallied 4.64% ahead of Monday’s open in the wake of its results. Other big banks have also reported results this week, including Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS).

Like many big banks, BofA has been the subject of ridicule by people upset with Wall Street. It recently came under fire for announcing a $5 a month charge on debit-card use for purchases.