Bank of America's pruners coax 2% profit growth

Some say new Goliath should be doing better

July 20, 1999|By BLOOMBERG NEWS

CHARLOTTE, N.C. -- Bank of America Corp. said yesterday that second-quarter earnings rose 2 percent at a time when the company is cutting costs and struggling to boost revenue after last year's merger of NationsBank Corp. and BankAmerica.

Profit from operations at the biggest U.S. bank rose to $2.06 billion, or $1.15 a share, from $2.02 billion, or $1.13, in the year-earlier period. Charlotte-based Bank of America said its net income was $1.92 billion, or $1.07 a share, including a $145 million after-tax charge arising from the merger.

The earnings met expectations.

Bank of America, under Chairman and chief executive Hugh McColl, has failed to produce the kind of earnings growth posted by rivals such as Citigroup or J. P. Morgan & Co. Instead, it has been meeting forecasts by aggressively closing branches, cutting jobs and buying back its stock.

"Bank of America should be showing better growth than it is," said Scott Edgar, director of research at Sife Trust Fund in Walnut Creek, Calif., which owns $1 billion of financial stocks. "They're still putting together two big banks from different coasts, and, at the moment, they're not spinning off as much growth as Wells Fargo or Citigroup. The rate of growth has been slowed by the merger."

Ed Najarian, a bank analyst at First Union Capital Markets, said earnings per share are rising because of expense cuts and share repurchases. Competitive loan pricing and a lower return on $78 billion in investment securities are cutting into the bank's net interest revenue, which accounts for about 60 percent of Bank of America's earnings, he said.

Bank of America reported a return on equity, a key measure of profitability, of 17.6 percent vs. 18.24 percent in the year-ago quarter. It also lags behind the 23 percent return on equity of Citigroup and the 19.4 percent return on equity at Fleet Financial Group.

"They're excited because they're generating a 17.6 percent return on equity, but they should be able to do better than that consistently," said Diane Glossman, a bank analyst at Lehman Brothers Inc. "The company is still running around with redundant systems."

Bank of America expects its merger with NationsBank, which closed last Sept. 30, will reduce annual expenses by about $1 billion.

"We're on track if not a little ahead of schedule for our annual goals of expense savings," James Hance, the chief financial officer of Bank of America said, during a conference call.

The bank cut noninterest expenses by 6.5 percent to $4.57 billion, as the number of employees dropped 9.4 percent to 161,919. The bank reduced the number of employees in the second quarter by 4,500, Hance said.

The bank also cut the number of branches by 6.9 percent to 4,531, and automated teller machines by 4.4 percent to 14,051 from the second quarter last year.

Bank of America's shares fell $1.50 in trading yesterday to close at $74.

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