BofA (BAC) Asset Sales to Trim FY12 Profits by ~$2.8B
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Asset sales in 2011 are probably going to hit Bank of America where it hurts the most: the breadbasket. Except, in this case, bread refers to 'net,' and basket refers to 'income.'
Last year BofA moved to divest about $33 billion in assets as it worked toward gaining better regulatory compliance on capital levels. While the sales were a necessary step, they might cut off about $2.8 billion from 2012 profit, according to data compiled by Bloomberg. The number might be more than all that BofA earned on a pretax basis in 2011.
Less assets lead to lower interest income, and those are tough choices for management to make. However, short-term pain might lead to longer-term gain as numbers start to flatten out and confidence returns.
One other issue is BofA's current holdings; there are less undesirable assets for the bank to get rid of, meaning growth will have to come more from the core. Some are even betting on a potential split of the bank into several smaller parts, all of which may have more value locked in than BofA as a whole.
In the future, federal regulators could force BofA to raise capital, which is more likely to be done through a stock sale rather than selling a core business, according to Bloomberg.
BofA is expected to report fourth-quarter numbers on Thursday, with expected revenue of $24.08 billion and earnings of 15 cents per share. For the year, analysts are expecting pretax income of $2.6 billion or so, which stemmed mostly from the second-quarter loss on mortgage settlements. For 2012, analysts are expecting pretax profit of $16.2 billion and for 2013 that number moves to $22.6 billion. Notably, CEO Brian Moynihan has said his goal is for profit of $35 billion to $40 billion when businesses recover, which doesn't have a specific time line.
Shares are about 2.5 percent higher Wednesday morning.
Last year BofA moved to divest about $33 billion in assets as it worked toward gaining better regulatory compliance on capital levels. While the sales were a necessary step, they might cut off about $2.8 billion from 2012 profit, according to data compiled by Bloomberg. The number might be more than all that BofA earned on a pretax basis in 2011.
Less assets lead to lower interest income, and those are tough choices for management to make. However, short-term pain might lead to longer-term gain as numbers start to flatten out and confidence returns.
One other issue is BofA's current holdings; there are less undesirable assets for the bank to get rid of, meaning growth will have to come more from the core. Some are even betting on a potential split of the bank into several smaller parts, all of which may have more value locked in than BofA as a whole.
In the future, federal regulators could force BofA to raise capital, which is more likely to be done through a stock sale rather than selling a core business, according to Bloomberg.
BofA is expected to report fourth-quarter numbers on Thursday, with expected revenue of $24.08 billion and earnings of 15 cents per share. For the year, analysts are expecting pretax income of $2.6 billion or so, which stemmed mostly from the second-quarter loss on mortgage settlements. For 2012, analysts are expecting pretax profit of $16.2 billion and for 2013 that number moves to $22.6 billion. Notably, CEO Brian Moynihan has said his goal is for profit of $35 billion to $40 billion when businesses recover, which doesn't have a specific time line.
Shares are about 2.5 percent higher Wednesday morning.
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