Friday, January 21, 2011

BAC Q4 2010 Earnings

I'm not a forensic accountant, just a trader taking time to meticulously go through BAC earnings in depth and do some simple math.  From a going concern standpoint, this bank looks to be in some trouble.  They need asset prices to rise, legislation that prevents repurchase risk, no more lawsuits, no wiki-leaks, a strong economy, lots of capital.  Basically a miracle.

Net interest income was the only positive for Fiscal 2010 for BAC as it was up 9.4%.  The bad news?  A 7.9% decrease in total net revenue and a 24.5% rise in non interest expense for Fiscal 2010 versus 2009.  To be fair, there was a 12,400 goodwill impairment taken during Q3 and Q4 2010 but to be even fairer one must realize in Fiscal 2010 BAC halved its provision for loan losses over 2009 from 48,570 to 28,435.

The ability for banks to tweak earnings by adjusting provisions for loan losses is a disservice to investors.  From Q4 2009 to Q4 2010 allowance for credit losses increased by 4,685 which means in all of Fiscal 2010 total balance sheet write down due to loan losses was 33,120.  The total in 2009 was 48,570.  2010 saw record foreclosures.  If someone can explain to me why 2010 provisions were so low other than to simply offset goodwill impairment charges and tweak earnings, please let me know.  I honestly would like to understand.  Seems to me BAC is setting themselves up for some nasty earnings in 2011 which will make 2010 look good.  Right now they look horrid.  My take at least.


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