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Fee growth helps BofA boost profit

Bank's second-quarter earnings climb 5%, but a big increase to loan-loss provisions is a concern. Bank of New York sees net income edge lower.

July 20, 2007|From the Associated Press

CHARLOTTE, N.C. — Bank of America Corp. recorded another profitable quarter Thursday, but gave investors reason to worry as it fattened its provisions for loan losses, an indication that it sees lending risks growing.

Bank of America, the No. 2 U.S. bank by assets, reported a 5% rise in second-quarter earnings from growth in capital markets activity and consumer fees, offsetting an increase in credit losses.

But its provision for credit losses ballooned 79.2% to $1.81 billion, up from $1.24 billion in the first quarter and $1.01 billion in the second quarter of 2006. Net charge-offs, or bad loans, rose to $1.5 billion, compared with $1.43 billion in the first quarter and $1.02 billion a year earlier.

The earnings news came as nervousness over shaky loans grows. Bear Stearns Cos. told clients Tuesday that a meltdown in the sub-prime mortgage market has made the assets from two of its flagship hedge funds, which were once worth $1.5 billion, almost worthless.

But Kenneth Lewis, Bank of America's chief executive, said "we're well positioned going into the second half of 2007, with additional upside in 2008."

And Bart Narter, a senior analyst at Celent, a Boston-based financial research and consulting firm, said, "I don't think the good times are over for banks because they are making it up in fees."

"They continue to gather new accounts and more accounts mean more fees," Narter said.

Bank of America, based in Charlotte, N.C., credited the quarter's results to revenue increases in its three main businesses: consumer and small-business banking, corporate and investment banking, and wealth and investment management.

Net income climbed to $5.76 billion, or $1.28 a share, from $5.48 billion, or $1.19, a year earlier. Revenue grew 8% to $19.96 billion.

The results beat analysts' expectations, which estimated earnings of $1.20 a share on revenue of $18.58 billion, according to a poll by Thomson Financial.

The bank expects to increase its customer base even more with its plans to spend $21 billion to buy Chicago-based LaSalle Bank Corp., a unit of Netherlands-based ABN Amro. Lewis said he expected the deal to close in the fourth quarter.

Separately, Bank of New York Co., the financial firm that completed its acquisition of Mellon Financial Corp. on July 1, said its second-quarter profit, excluding integration costs, rose 21%.

Including those costs, the financial services company's profit slipped 0.7%, but the adjusted results -- driven by growth in asset management and a record amount of securities servicing fees -- beat analysts' expectations.

Net income for the quarter was $445 million, or 58 cents a share, down from $448 million, or 59 cents, in the same period a year earlier.

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