4Q RESULTS: B of A Execs Caution on Loan Demand, Economy
Davis, Paul, American Banker
Byline: Paul Davis
Brian Moynihan's strategy for his first call with analysts as Bank of America Corp.'s chief executive was clear: use measured reassurances to reconcile the highs and lows of the company's financials.
Moynihan, who succeeded Ken Lewis Jan. 1, had to report the company's third losing quarter in the past five and explain a mixture of good and bad signs on loan demand, credit quality and key operations. For the most part he played it safe, setting a tone of cautious optimism for the year ahead.
B of A will be "grinding through" a year of slow improvement with some unpredictable twists, Moynihan said. "We believe we can anticipate positive job growth in 2010, but even with that, the number of unemployed will remain large for quite some time and extend the drag on consumer spending and overall economic growth."
Moynihan and Chief Financial Officer Joe Price on multiple occasions warned that lagging loan demand, particularly from commercial clients, would be the big headwind this year.
Overall, the loan book shrank 1.6% from the third quarter and 3.8% from a year earlier, to $900 billion. Moynihan conceded that line utilization from corporate clients remained near an all-time low, at 58%, and most consumer portfolios continued to have decreased balances. "We know our companies continue to be very cautious, and we're not yet seeing the typical business level activity for recovery," he said.
The executives noted, however, that interest in loans had picked up in a handful of markets and more was on the way.
"I believe 2010 will be a tale of two periods," said Price, who will become head of consumer and small-business banking on Feb. 1, filling a post vacated by Moynihan. "The first period being gradual improvement in the economy and the second being a more significant improvement in consumer and commercial activity." He did not specify a possible timetable.
Price also warned that revenue levels "will be volatile" throughout the year.
Moynihan said B of A's credit problems had likely peaked in the third quarter and that the period of "significant additions of reserve are hopefully over." Yet he cautioned that credit issues would linger. "Net loss levels should remain elevated for the next several quarters," he said, with commercial real estate likely to remain problematic through midyear. "And we still have several quarters before we can discuss actual normalized earnings."
B of A's bottom line felt the bittersweet sting of exiting the Troubled Asset Relief Program, costing the company $4 billion in the fourth quarter. …