December 12, 2007

BofA 4th Quarter Earnings Hit



Most media outlets have jumped on the "grim outlook" for BofA fourth quarter earnings when BofA presented yesterday at an investment conference, really? As if it was earth chattering revelations. Off course BofA will get hit, so is every other bank, no exceptions, we are in the midst of a historical credit crises, and banks' business is credit.

Remember that BofA has significant assets and balance sheet that will enable it to survive the crises and the CEO emphasized that in his presentation. Also he mentioned additional reserves increases, this is what he said:

At Bank of America, we currently expect provision expense to be approximately $3.3 billion in the fourth quarter, reflecting increased reserves of about $1.3 billion. In round numbers, about one third of the increase is due to growth and seasoning in our consumer lending portfolios with the remaining two thirds due to deterioration principally in consumer real estate and some in small business.
The media reported the $3.3 billion figure as additional write down, when in fact it is not. Accounting rules will require you to add additional loss provisions as you expand your lending activities and some of the $3.3 billion is just that. The other part is a legitimate reduction of value due to the credit conditions, but it is still very manageable for a bank like BofA.

Still the bank is a good value for the long run.

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