America’s most delusional bank is back in black, but not as much as Wall Street would like.
Bank of America (BAC) posted a first-quarter profit Friday, reversing the loss it unexpectedly suffered at the end of 2010. But the bottom line was smaller than analysts were expecting, which will only add to questions about CEO Brian Moynihan’s leadership following last month’s humiliating dividend smackdown at the hands of normally somnolent bank regulators.
The Charlotte, N.C., bank made $2 billion, or 17 cents a share, for the first quarter. That compares with a year-ago profit of $3.2 billion, or 28 cents a share.
Revenue tumbled 16% from a year ago, to $27 billion. Analysts were forecasting a 27-cent profit on $26.7 billion in revenue.
The report included an $847 million hit to profits as BofA added to its reserves to pay claims tied to mortgage disputes, and an unspecified rise in litigation expense. JPMorgan Chase (JPM), the No. 2 U.S. lender after BofA, said this week that unusual mortgage-related costs shaved nearly $2 billion off pretax profits in the first quarter.
BofA also missed out on $534 million in fees thanks to laws limiting overdraft fees, and its sales and trading results were weaker than they were a year ago. Still, Moynihan pointed hopefully to a decline in credit costs and a rise in deposits as barometers of improving health.
“While still soft, the economy is healing; we see retail spending up versus the year-ago period and continued declines in bankruptcy filings and delinquency rates,” Moynihan said.
But the report won’t end the questions about Moynihan, who spent the spring foolishly promising investors that BofA would raise its quarterly dividend in the second half of 2011 — even as the Federal Reserve made clear that it would decide when banks got to increase their payouts to shareholders.
It says something about Moynihan’s tortured relationship with reality that he continued to promise the dividend increase right up till the Fed — which has generally taken the position that banks are justified in doing anything they like short of physical violence — finally shut him down.
Of course, everyone hasn’t deserted the blindered CEO. “We weren’t looking for a big increase in the [dividend] this year anyway,” sniffed Morgan Stanley analyst Betsy Graseck, who has rated the stock buy for two years now with little to show for it. “BAC is a tail-risk reduction story, not a capital return story.”
And a good thing, too, because recent developments certainly don’t argue for a quicker dividend increase at BofA. The Fed and other federal banking regulators this week slapped 14 U.S. lenders and mortgage companies, including BofA, with enforcement actions accusing them of botching borrower paperwork and ordering them to make good on their mistakes.
Whether the banks actually bother to clean up their act remains to be seen. But the Fed has promised to levy fines, and a bank like BofA that has a giant foreclosure backlog and has made numerous embarrassing errors seems like a good bet to draw a big one. Sooner or later even Moynihan may wake up and realize this outfit has more work to do before it can get around to the business of rewarding its long-suffering shareholders.
Also on Fortune.com:
Hugely, you can follow me on Twitter on @colincbarr.