a mixed bag from bac

bac reported first-quarter 2008 financial results this morning before the bell, and, as feared, some of the numbers were worse than expected, although there were a few positive items as well.

eps of 23 cents was well below the consensus estimate of 41 cents, while net revenue of $17.3 billion was almost $800 million greater than the $16.5 billion consensus estimate for the bank. all of the writedowns in the collateralized debt obligation and leveraged loan book and also the home equity, small business and homebuilder portfolios (provision expense increased from $4.78 billion to $6 billion) were expected, and maybe even better (or less worse) than expected, per one analyst.

despite the 60% drop in global consumer banking earnings, net revenue here (excluding the v gain) was 3% higher sequentially in the consumer division, and non-interest income (also excluding visa) rose 21% year over year -- both better than expected, particularly since global consumer net revenue usually declines sequentially from fourth quarter to first quarter. the visa ipo generated a $700 million gain for bac in the quarter.

retail deposit growth grew 2.3% sequentially and, per Ken Lewis on the call, was indicative of bac taking share. the credit and capital markets numbers were bad, while some of the unrelated consumer and corporate segments showed good growth. the question remains as to whether bac is diversified enough to offset some of the deteriorating credit concentrations with growth in other areas.

tier I capital actually rose, from 6.8% in fourth quarter 2007 to 7.15% in first quarter 2008. on the conference call, Ken Lewis went out of his way to say that it is liquidity in addition to capital that determines bank credit-worthiness, and he went on to say that bac has 20 months of liquidity available.

the dividend policy will be maintained, per Lewis, unless a further "significant deterioration" occurs in the U.S. economy.

the cfc acquisition will close in the third quarter.

while bac's numbers were ugly (and not unexpected), the question remains whether the second-largest bank in the country can generate pre-tax profitability to prevent capital and liquidity erosion from the housing, home equity and homebuilder portfolios and gradually restore the capital base. the best news i heard on the call was that, as of today's earnings release, the company has no plans to cut the $11.4 billion annual dividend, which equates roughly to $2.56 per share annually, or close to 7% based on where the stock is trading today. otherwise, funds would dump the stock like crazy.

right now, a decision to purchase bac stock is a call on the economy: if you think the economy has bottomed, then you could probably safely own Bank of America. i think a 7% dividend yield puts a floor under the shares for a short time. also, the Moody's action announced this morning, while seemingly ominous, still leaves Bank of America with a senior debt rating of AA2 (very high quality but still on negative credit watch) and means that the company is not nearly in as bad of shape as some smaller, regional competitors.

long bac