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Big banks' earnings reports indicate turnaround may be under way

It was generally a strong day Tuesday for big U.S. banks, with Bank of America, Goldman Sachs and Bank of New York Mellon reporting third-quarter earnings that either topped or narrowly missed analysts' expectations. While investors remain concerned about several issues, most notably the tumultuous state of foreclosure cases, signs are starting to point to a solid turnaround for the industry as a whole.

Here's a rundown of Tuesday's earnings news:

Bank of America: The nation's largest bank said Tuesday it lost $7.65 billion during the third quarter due to a $10.4 billion charge related to credit and debit card reform legislation passed over the summer.

Excluding the one-time charge, Bank of America earned $3.1 billion, or 27 cents per share, in the three months ending in September. That easily topped the 16 cents per share analysts polled by Thomson Reuters were expecting. Analysts don't typically include special charges in their estimates.

The better-than-expected results were due mainly to a sharp drop in losses tied to defaulting loans. The bank set aside $5.4 billion to cover bad loans during the third quarter, compared with $11.71 billion during the same quarter last year.

The bank also announced a change in its consumer banking strategy to focus on providing customers with incentives to do more business with the bank instead of generating revenue through penalty fees such as overdraft charges. For instance, it offers free checking to customers who use its "eBanking" channel or solely use online banking. The bank plans to begin testing new offerings in December that will reward customers for using certain kinds of banking products or keeping higher balances.

Goldman Sachs Group: The investment bank's earnings easily beat forecasts again, but it saw a big slowdown in trading, its most profitable business.

Goldman's results are closely watched because it is considered the strongest bank on Wall Street and regularly exceeds forecasts. The decline in Goldman's earnings could signal a change in the mix of how investment banks make money now that financial markets have steadied themselves following the credit crisis and recession.

Income fell to $1.74 billion, or $2.98 per share, the bank said. It earned $3.03 billion, or $5.25 per share, during the same three-month period last year.

Overall, revenue fell 28 percent to $8.9 billion, but still came in well ahead of the $7.92 billion analysts polled by Thomson Reuters had forecast.

Bank of New York Mellon: A buying spree boosted money management and servicing fees, and helped the trust bank return to profitability in the third quarter.

The New York bank reported net income of $622 million, or 51 cents per share, in the three months ended Sept. 30. That contrasts with a net loss of $2.46 billion, or $2.05 per share, a year earlier related to a charge for restructuring the company's investment securities portfolio.

BNY Mellon's revenue rose 3 percent to $3.43 billion from $3.33 billion, which beat Wall Street's $3.39 billion forecast.

Big banks' earnings reports indicate turnaround may be under way 10/19/10 [Last modified: Tuesday, October 19, 2010 9:29pm]
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