Bank of America earned more than $6 billion in the third fiscal quarter of 2011 due to accounting gains and the sale of its share of a Chinese bank. Profits from other banking activities - including investment banking, real estate and credit card businesses - meanwhile declined.
In the third quarter of 2010, Bank of America saw its profits fall close to $7.5 billion, representing 77 cents per share. In comparison, the third quarter of 2011 has seen the bank gain 56 cents per share. However, the bank’s assets worth has declined to just over $2.2 trillion in the quarter, seeing competitor JPMorgan Chase & Co. take the lead with assets worth close to $2.3 trillion.
Bank of America received more than $3.5 billion on sale of its share of China Construction Bank. After debt value decline, the bank saw accounting gains of $5.7 billion, while its private equity segment incurred losses in excess of $2 billion. In an effort to cut expenses by $5 billion annually for three years, the bank announced it will cut 30,000 jobs.
Bank of America suffered in the third quarter due to falling profits in its Merrill Lynch outfit, a credit rating downgrade and the effect of the EU debt crisis on financial markets. The bank’s trading and investment activities showed a combined decline of over $300 million in the quarter, while it saw a $1.5 billion gain in the same quarter in 2010.
The bank’s equity trading fell over $200 million, investment banking feels declined over 20% to just over $1 billion and revenue fell more than a quarter to little more than $5 billion.
Bank of America Knocked From Top Spot
The bank has lost its top spot among US lenders by assets after job cuts and unit sales. JPMorgan rose almost 2% to just under $2.3 trillion in the third quarter, while Bank of America fell almost the same amount to just over $2.2 trillion. JPMorgan has fared the financial crisis better, without showing a loss in any one quarter. It showed a net income of over $4.25 billion in the third quarter.
Customer Reaction to Bankcard Fees Still To Be Seen
Meanwhile, customer reactions to rising bankcard fees is yet to be seen. Bank of America is to apply a monthly debit card fee of $5 from the beginning of 2012.
The bank defended the move, blaming a government cap on debit-card transaction bank charges, which is likely to cut its yearly profits by as much as $2 million. The bank’s 58 million customers may look for alternative banking options, though the financial crisis is pushing financial institutions to become more assiduous about maximizing profits.
Before the crisis, customers could avail of free checking accounts at more than three quarters of banks. The number of banks offering free checking accounts has now fallen more than 30%.
Key Statistics – Banking in the US (source: American Bankers Association, Survey from September 2011)
- There are close to 100,000 bank offices in operation across the US.
- The US banking sector employs more than 2 million full-time workers.
- In 2011, over 60% of US adults favored online banking, 34% more than in 2010.
- Close to 60% of banking customers aged 55 and over prefer to bank online, close to 40% more than in 2010.