Litigation expenses totaling $4 billion dragged down Bank of America’s profits by 43 percent during the second quarter, while the wealth management sector also reported lackluster profits.
The Charlotte-based bank reported a profit of $2.29 billion for the quarter, compared with $4.01 billion in net income earned a year ago. The slide was largely attributed to $4 billion in legal costs, including the bank's $650 million settlement with American International Group (AIG) over lawsuits stemming from mortgage-securities.
It was the second quarter in a row Bank of America reported massive litigation expenses. During the first quarter, the bank racked up $6 billion in legal costs, which led to its first quarterly loss in three years. Overall revenue also took a hit, dropping 4.3 percent to $21.96 billion from the $22.95 billion reported in June 2013.
Bank of America’s wealth business, Global Wealth and Investment Management, also took a hit on profits, reporting a net income of $724 million, down from the bank’s $759 million profits in June 2013. Revenue fared slightly better for the quarter, increasing almost 2 percent to a record $4.59 billion from a year earlier. The company attributed the increase to higher non-interest income related to improved markets and long-term AUM flows.
“Lending was strong, more client deposits are being deployed into long-term investment solutions and, while attrition remains at historic lows, our advisor population is growing again,” spokeswoman Susan McCabe said in an email Wednesday.
Additionally, the wealth sector reported client balances reached $2.47 trillion last quarter, up $72 billion, or 3 percent, since March. The increase was attributed to the higher market levels and robust flows. Client assets under management climbed to $878.7 billion, up 18 percent from last year.
“By talking to Merrill Lynch clients about their personal goals, and giving them new and simpler ways to interact with us, they are responding. One indicator of this is reaching a key milestone of $2 trillion in Merrill Lynch client assets,” McCabe says.
One of the key factors to the division’s performance is the increasing diversity of business mix, McCabe says. Roughly a third of the wealth management division’s revenue came from brokerage transactions, a third from fee-based business and a third from net interest income off deposits.
All of the division’s advisors have a combination of fee-based and commission-based client relationships. As of June, almost half of financial advisors had 50 percent or more of their client assets under a fee-based relationship, McCabe reported.
Within Merrill Lynch, asset management fees reached $1.5 billion, up 16.6 percent from a year earlier, hitting a post-merger record. Moreover, advisor attrition for Merrill was down for the quarter, with the unit reporting a net gain of 120 advisors to hit 13,845 total advisors.
The attrition of trainees within Merrill’s Practice Management Development also improved, with 106 new advisors graduating during the second quarter. The program is on target to graduate a record number of trainees in 2014, McCabe says.