Bank of America Corp.has become the nation's incredible shrinking bank — and shareholders don't seem to mind at all.
The Charlotte, N.C., bank has slashed staff, combined business units and dialed back its massive mortgage business. These steps helped the bank post $3.6 billion in operating profit during the first three months of the year — a 40% surge — even as revenue fell 2.5%.
The rebound has delivered a 60% jump in the company's battered stock price this year. Chief Executive Brian Moynihan told Wall Street on Tuesday that the bank has squeezed out more profit under a plan to divest businesses, cut costs and clean up its mortgage business.
"We still have work to do, but we're pleased with our progress," he told analysts during a conference call after reporting first-quarter results.
Moynihan has tried to reinvent the bank as a leaner but more profitable company under a program he calls Project New BAC. The current phase aims to eliminate 30,000 jobs by the end of 2014 and remodel some business lines.
The bank felt the effect of the program during the first quarter — much of it within BofA's mortgage business, which has struggled since its acquisition of Countrywide Financial.
Bank of America's total loan portfolio continued to decline during the quarter. And at its consumer and small-business unit, revenue fell 12% to $7.4 billion while profit dropped 29% to $1.5 billion.
Moynihan has shut down arms of the business that bought loans from smaller mortgage bankers. BofA's volume of originations has dropped from $87 billion in the final quarter of 2010 to $16 billion in its latest quarter, of which 84% were refinancings.
Such a nose dive at a major mortgage lender "has never happened before," said Paul Muolo, editor of National Mortgage News. "Unless the institution in question failed or was taken over" by the U.S.
After running up tens of billions of dollars in losses, the mortgage business is still running deeply in the red. It lost $1.1 billion in the first quarter this year, down from $2.4 billion a year earlier as the delinquency rate on legacy Countrywide loans eased somewhat.
Also during the quarter, the bank reported improvements in several key areas, including increased capital to guard against future financial shocks and 800,000 new credit card accounts opened during the quarter. Its provision for credit losses fell, its investment banking and trading operations were strong, and its book of loans to larger businesses grew for a fifth straight quarter.
BofA's wealth management business reported a profit of $547 million, its second-best quarter since it acquired Merrill Lynch as the financial crisis erupted in late 2008. The bank added about 200 financial advisors during the quarter, bringing the total to 17,500.
Moynihan also said Thursday that he is pressing ahead with plans to prune BofA's massive branch network by 750 locations. The company, which has the nation's largest branch network, would look to unload locations in less populated parts of the country.
Once the largest U.S. bank, with a dominating presence in the consumer market, Bank of America has slipped to the No. 2 position behind JPMorgan Chase & Co.
Bank of America is focusing the consumer bank in urban areas, historically an area of strength compared with retail archrival Wells Fargo. BofA said its branch count dipped to 5,651 in the first quarter, down 51. That compares with 5,541 at JPMorgan Chase & Co. and 5,474 at Wells Fargo.
"We're fine-tuning our delivery network" to focus on more affluent customers, Moynihan said.
Critics such as analyst Paul Mayo, author of "Exile on Wall Street," wonders whether BofA can make such deep cuts to its retail business and workforce without damaging the franchise.
Mayo is also concerned about how it can increase revenue in what remains one of the toughest banking environments since the Great Depression.
Mayo, a bank analyst at broker Credit Agricola Securities, calls Moynihan's management ineffective. He cites the promise of a dividend increase that the Federal Reserve denied, the bank's still-unresolved liability to claims by mortgage investors, and last year's retreat from a woefully received proposal to charge customers $5 a month to make debit-card purchases.
"We have not changed our negative rating on the company," he said after Thursday's earnings presentation.