Bank of America, Wachovia profits soar on mergers

NEW YORK (Reuters) - Bank of America Corp. (BAC.N) and Wachovia Corp. (WB.N), two of the biggest U.S. banks, on Tuesday posted larger-than-expected quarterly profit increases, as acquisitions and fee growth offset weakened credit quality.

Fourth-quarter net income rose 47 percent at Bank of America, the nation's second-largest bank, to $5.26 billion, or $1.16 per share, from $3.57 billion, or 88 cents. Profit rose 35 percent at Wachovia, the fourth-largest bank, to $2.3 billion, or $1.20 per share, from $1.71 billion, or $1.09.

Profits also rose at two regional banks, more than doubling at Cleveland's National City Corp. (NCC.N) and rising 6 percent at Pittsburgh's PNC Financial Services Group Inc. (PNC.N).

Banks are making acquisitions and emphasizing fee growth after 17 interest-rate increases by the Federal Reserve boosted their borrowing costs and crimped lending margins. Such growth helps offset an increase in credit losses from recent low levels, a trend many banks expect to continue through 2007.

"Fee income helps banks not be too overly reliant on net interest income," said Joe Price, chief financial officer of Bank of America, whose $34.2 billion purchase last January of credit card issuer MBNA Corp. fueled a 66 percent jump in fees. He spoke in an interview.

In afternoon trading, Bank of America shares fell 0.8 percent, while Wachovia shares rose 0.2 percent.

BANK OF AMERICA

Profit excluding merger costs at Bank of America totaled $1.19 per share, a penny more than expected by analysts polled by Reuters Estimates. Revenue rose 34 percent to $18.47 billion, topping forecasts for $18.16 billion.

Results nevertheless disappointed some investors. Expenses rose and revenue fell from the third quarter and the bottom line benefited from a doubling of equity investment gains, which might not be repeated.

Charlotte, North Carolina-based Bank of America also projected slowing growth in 2007 as interest-rate pressures persist and loan losses rise by 20 percent or more.

Earnings topped the $5.13 billion posted on Friday by Citigroup Inc. (C.N), the largest U.S. bank, whose profit rose 3 percent.

Credit quality, though, fell from the third quarter. Bank of America set aside $1.57 billion for credit losses, up 34 percent, and net charge-offs rose 11 percent to $1.42 billion.