Bank of America on Monday continued the disappointing run of results from the top US banks by reporting a 2 per cent decline in net income for the fourth quarter.
The second largest US bank by assets was hit by the surge in bankruptcies linked to a change in the law and the narrow gap between short and long-term interest rates. It also suffered a sharper than expected downturn in its capital markets business, which reduced net income at its investment bank by 79 per cent.
Ken Lewis, chief executive, said trading would pick up in coming quarters and that it should benefit from the lower level of bankruptcies following the introduction of the new legislation.
"Apart from those issues, our businesses had a very good year and solid fourth quarter, which sets a good foundation for 2006," he said.
However, Alvaro de Molina, chief financial officer, said the company would be facing "headwinds" in the coming year because of the difficult interest rate environment and a return to a more normal level of bad debts costs.
He said earning per share, excluding merger costs, were expected to increase by a low to mid-single-digit percentage, suggesting some Wall Street forecasts were too high.
Mr Lewis said its recent $34bn acquisition of MBNA, making it the biggest US credit card issuer, would be neutral for earnings this year and increase them in 2007.
Net income for the fourth quarter slipped 2 per cent to $3.77bn, or 93 cents a share, compared with average forecasts of $1.02 a share. Revenue was up 3 per cent compared with the previous year, driven by higher card income, mortgage banking income and equity investment gains, while non-interest expense decreased slightly.
For the year, net income was 19 per cent higher at $16.9bn, boosted by a full year of FleetBoston Financial, which was acquired in mid-2004.
The group's capital markets and investment banking business, in which Bank of America has been investing heavily, saw 2005 net income fall 10 per cent to $1.74bn on flat revenue of $9bn, in a year when most of its bigger rivals saw strong growth.
In the fourth quarter net income tumbled to $123m, down 79 per cent on the previous year, hit by a sharp reduction in trading profits in fixed income and foreign exchange products.
Mr de Molina said the result was disappointing but not out of line with rivals in comparable businesses.