Debt cliff looms for BoA despite profits boost

BANK OF America said yesterday that it faces a $34bn refinancing cliff in the next eight weeks but reported a boost to trading volumes that brought its global markets back into profit after a dismal fourth quarter of last year.

Overall, the bank saw a sharp drop in profits, with net income falling from $2bn in the first quarter of 2011 to $653m so far this year. That was also down from the $2bn it made in the fourth quarter of last year.

But the results were better than expected and the global markets division of Bank of America-Merrill Lynch’s investment bank, which handles trade flows, recovered from a $768m loss last quarter to a $798m profit. That was still only just over half the $1.4bn net profits it made in the same period of last year however.

And despite the investment bank’s better outlook, which was shared by its rivals due to a cash injection by the ECB prompting a pause in the Eurozone crisis, BoA-ML’s recovery has still been hampered by the US housing market.

It was forced to write off a $1.8bn chunk of real estate loans because of stricter regulations, despite booking an overall improvement in the quality of its loan book.

And it faces a wall of debt maturities in the next two months, a daunting prospect despite the bank’s claim that it is “well-prepared to address $34bn of parent company maturities in [the second quarter 2012], including the remaining $24bn related to the [US government’s] Temporary Liquidity Guarantee Program”.

The lender was also hit by a litigation cost of $800m, with more in the pipeline. Another $5bn’s worth of claims were filed in the first quarter of this year alone, the bank revealed, with 84 per cent of them filed by government-sponsored entities such as Fannie Mae and Freddie Mac.

BoA-ML also revealed that it expects its common equity ratio under strict Basel III definitions to be about 7.5 per cent by the end of 2012, below the minimum it needs to reach by 2019.