Bank of America Reports Q2
Wednesday, July 22nd, 2009Welcome back!
BANK OF AMERICA - BETTER THAN EXSPECTED EARNINGS
Bank of America is one of the largest financial institutions worldwide. Not only does it deal with banking but also other financial product tools like risk management, investing and so on. It caters to individuals, small businesses, as well as large corporations.
On July 17, 2009 Bank of America announced its second quarter earnings. Even though it did better than all the analyst predictions, earnings as compared to last year were still down. The second quarter net income fell around 25 percent to $2.42 billion, or 33 cents per share, as compared to $3.22 billion, or 72 cents per share, from last year. Analysts had predicted earlier that Bank of America would earn 28 cents per share. The lower income reported was a result of an increasing number of troubled loans that are still being charged off as bad debt because customers are still falling behind and defaulting on their credit card and mortgage payments. However, Bank of America saw a rise in revenue to $32.7 billion which was slightly below the analyst forecast of $33.1 billion.
Even though it managed to beat the forecasts, Bank of America still faces a number of issues that will continue to drive down earnings for awhile longer. CEO Ken Lewis stated that, “continued weakness in the global economy, rising unemployment and deteriorating credit quality” would be the cause for deflated earnings for the rest of the year. They are still wary of the amount of loans that keep going into default each month and are unsure as to how long that will continue to affect them.
Stocks fall due to rising credit losses ( BAC )
We have seen stock prices of banks rising throughout this week. However, even though Bank of America reported better than expected earnings, stock prices continued to drop all day Friday after its second quarter earnings were reported. The failed confidence in the bank was due to the report of rising credit losses that continue to occur. Investors view these earnings as inflated and temporary. Additionally, CEO Ken Lewis stated that Bank of America would need to raise further capital of up to $33.9 billion. Therefore, even after beating analyst expectations, Bank of America stocks fell by 2.1 percent, or 28 cents, down to $12.89 at close on Friday. Investors predict that the stock price of Bank of America and the entire banking sector will continue to spiral downward for the rest of the year until credit losses are seen to improve and the continuous need for additional capital is reduced.
Bank of America performed much better than most of the banks in their second quarter earnings. But, investors need more than temporary rise in earnings to put their confidence in these banks. Thus, even after beating analyst forecasts, stock prices of Bank of America continue to fall. However, it is predicted by most that Bank of America has the strongest potential to weather this storm and emerge as one of the leading worldwide bank that it has always been known for.
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