Bank of America Earnings Preview: Penny Squeez

Bank of America reports QE June 2012 financial results on Wednesday, July 18, before market open

Time is near for the quarterly crapshoot reporting from Bank of America, the World’s Most Unstable Bank. CEO Brian Moynihan continues cleaning up the carnage from the biggest debacle in banking history. The foremost problem is contingent liabilities, ongoing legacy losses, that surface and the lawsuits that result. After reserving billions of dollars, the worst of the incredible and extraordinary losses appear accounted for. But who really knows the extent of the losses?

There is usually some hype over excluding valuation adjustments and reporting a higher EPS than the typically dismal GAAP earnings per share. Pay no attention to management,  the stock pumpers, and starry-eyed headline writers behind the curtain. If some pennies can be squeezed from the junk pile for the shareholders, that’s about all that can be hoped for.

Let’s clarify the gawdawful, incredible mess that is called Bank of America: even the auditors don’t know if their was net income or loss in any given quarter. By the time a GAAP EPS is crafted, countless assumptions have been made regarding contingencies, reserves, valuations, accruals, and the finer points of accounting rules. Some of these are negotiated with management. Therefore the earnings per share is built upon reasonableness, materiality, estimates, and exorbitant auditing fees. All we can hope for is consistency each quarter to create a baseline. This same scenario also applies to Citigroup , among others.

The DVAs, CVAs, FVOs, and accruals create wild quarterly multi-billion dollar swings in Bank of America financial results. Markets go up or down, then the valuations go up or down, then EPS goes up or down. This volatility overwhelms the core banking operations. CEO Moynihan talks about customer and client relationships and all sorts of nonsense while the traders, algorithms, and greed are churning away in the background.

Core banking operations have diminished in the asset mix. Apparently there is not enough upside in this boring endeavor.  Net loans decreased to 40% of total assets while cash & investments rose to 45%. The inmates have rallied and taken over the asylum. Credit losses have down-trended and are not a drag on net income. Therefore, core banking performance is actually good but an aside to the glamour of being a world player in the markets.

At 3-31-12, I have rated Bank of America a “C+” on a scale of A+ to G-. The median rating is “D” and the average rating was “C”. Financial position strength is weighted more than financial performance. The bank ratings review is here .

For the current Q2 2012, the average analysts’ EPS estimate is a whole $0.15, which is an astronomical +400% QoQ and a skyrocketing +117% YoY. These levels of lofty gains, and losses, are possible when you deal in pennies. This would match the QE December 2011 EPS of $0.15.

Estimated QE June 2012 Earnings per Share
Yahoo Finance Estimates: $0.15 avg, $0.06 low, $0.23 high, 29 analysts
Prior Quarter: $0.03
Prior Year: ($0.90)
Outlook: none provided

Prior Quarter: Bank of America Earnings Miss, the Crapshoot Continues

Bank of America Income Statement Q1 2012 Bank of America reported net revenues of $22.28 billion, net income of $653 million, and earnings per share of $0.03. From the prior quarter Q4 2011, these were -10%, -67%, and -80%, respectively. From the prior year Q1 2011, these were -17%, -68%, and -82%, respectively. The operating and net margins dipped QoQ and YoY to 3.23% and 2.93%, respectively. The Provision for Credit Losses of $2.42 billion is at a multi-year low. The operating expense ratio of 71.17% is historically high.

Bank of America Balance Sheet Q1 2012 Total assets increased to $2.18  trillion . Bank of America continues below the total assets of $2.32  trillion reported by JPMorgan Chase for the current quarter. The capital ratio was flat at 10.66%, which is strong. Return on assets dipped from +0.06% to 0.00%. Net Loans are a decreasing share of the asset mix.

Largest USA Banks Ratings: Capital One & U.S. Bancorp Tops, Goldman Sachs Last

Bank of America Earnings Miss, the Crapshoot Continues

$ BAC $ XLF