Bank of America has been submerged by red ink caused by mortgage-related losses, but all that has apparently changed as the company reported a $2 billion profit in the fourth quarter. After the announcement, Bank of America shares rose more than 2% to just below $7 a share.
The profit announcement was a dramatic turnaround from the previous year. Bank of America investors watched the company’s shares dive by more than 50% last year and the company lost $1.2 billion in the fourth quarter of 2010.
Bank of America’s traditional consumer and corporate lending divisions were healthier than its capital markets divisions. The Global Banking and Markets division saw revenues drop by 31% with a recorded net loss of $433 million.
The country’s second largest bank has been steadily shrinking, laying off around 7,000 employees and shedding tens of billions of dollars from its balance sheet. Bank of America lost its number one ranking as the biggest bank in the United States to JPMorgan Chase last year.
The shrinking the company’s balance sheet and selling off assets allowed Bank of America to solidify its capital position. The bank’s Tier 1 capital ratio rose to 9.86% in the fourth quarter, from 8.6% a year ago.
Bank of America chief executive Brian T. Moynihan said in a statement, “We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company. We built our capital ratios to record levels during 2011 on the strength of our core businesses and by shedding those that are not core to serving customers and clients.”
The $2 billion in income was mainly the result of one-time items, including a gain of $2.9 billion from the sale of a stake in China Construction Bank and a gain of $1.2 billion on the exchange of common stock for preferred stock. The company’s acquisition of Countrywide Financial in 2008 is likely to go down in history as one of the most disastrous corporate deals ever, saddling the bank with losses of more than $30 billion.