By Peter Rudegeair and Anil D'Silva
(Reuters) - Bank of America Corp (NYS:BAC) said on Wednesday quarterly profit surged by nearly $3 billion (1.83 billion pounds) as revenue increased and mortgage losses plunged, the clearest sign yet the bank was shaking off the impact of the financial crisis.
Results were strong across most of its businesses. Consumer banking had its best quarter since 2011, the wealth management and global banking divisions posted record revenues, and its investment bank maintained its lead spot in fees in the Americas, with a 10.7 percent market share in the quarter.
"More than any of the recent quarters that I can recall, I think it really showed a bank that's well into recovery," said Shannon Stemm, a banking analyst with Edward Jones.
The second largest U.S. bank has been groaning under the weight of bad mortgages it took on when Bank of America bought Countrywide Financial Corp in 2008, just before the housing crisis turned into a full-blown banking meltdown. The purchase has cost it more than $45 billion in writedowns and legal settlements.
On Wednesday, the bank said losses in its mortgage unit fell to $1.1 billion in the fourth quarter from $3.7 billion in the same period in 2012. In the year-earlier quarter, the bank reached several settlements totalling more than $5 billion with the federal government and mortgage giant Fannie Mae (FNMA.OB) over foreclosures and bad loans.
Like at many peers, mortgage demand fell sharply at the Charlotte, North Carolina bank as rising interest rates made refinancing less attractive. The bank made $11.6 billion in home loans, down 49 percent from the third quarter.
Many expenses from the financial crisis are falling, but the bank's revenues are also rising, and increased 14 percent to $22.32 billion in the quarter, excluding an accounting adjustment. Boosting revenue has been one of Chief Executive Officer Brian Moynihan's top priorities for the last year.
Not all of the lingering problems from the financial crisis are behind the bank. Litigation expenses jumped to $2.3 billion in the fourth quarter from $916 million in the same period a year earlier. Chief Financial Officer Bruce Thompson said the increase was tied to mortgage securities litigation, but declined to elaborate.
But overall the positives in the quarter outweighed the negatives. Fourth-quarter net income for common shareholders rose to $3.18 billion, or 29 cents per share, from $367 million, or 3 cents per share, in the same quarter of 2012, when profit was dented by about $5 billion in mortgage-related charges.
Analysts estimated earnings of 26 cents per share, according to Thomson Reuters I/B/E/S.
Bank of America's shares, which soared 34.6 percent in 2013, rose 2.3 percent at $17.15 in Wednesday trading.
"Momentum is becoming more evident," CEO Moynihan said on a conference call with analysts.
JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) both reported better-than-expected quarterly earnings on Tuesday.
The bank set aside $336 million to cover bad loans in the quarter, versus $2.2 billion a year earlier. It released $1.2 billion from reserves to cover bad loans, compared with $900 million a year earlier, and $1.4 billion in the third quarter.
Operating costs fell by 6 percent to $17.3 billion. CEO Moynihan has focused on cutting costs since he took the top job in 2010, and announced plans in 2011 to save the bank $8 billion per year.
Companywide, investment banking fees increased 9 percent to $1.7 billion as companies around the world took advantage of record high stock prices to raise equity capital. Bank of America executives were optimistic it would benefit as dealmaking activity and debt and equity underwriting increased.
"There's not one piece we look at within the pipelines that we don't feel good about," CFO Thompson said on the call.
Revenue for global banking as a whole rose 9 percent to $4.31 billion, but net income dropped 9 percent to $1.27 billion as the company set aside more funds to cover possible losses as a result of more commercial lending.
Equity trading revenue jumped 27 percent to $904 million from a year earlier, and bond trading revenue rose 16 percent to $2.1 billion. Within the business, stronger results in credit and mortgage products more than offset weakness in rates and commodities.
Bank of America's global wealth and investment management business reported record net income and asset management fees.
Net income rose 35 percent to $777 million, while revenue increased 7 percent to $4.5 billion, driven by higher noninterest income related to long-term flows of assets under management and strong markets.
(Reporting by Peter Rudegeair in New York and Anil D'Silva in Bangalore; Editing by Dan Wilchins, Ted Kerr and Jeffrey Benkoe)