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Investors happy with Bank of America's slimmed-down approach

NEW YORK — Bank of America is back to basics — slimmed down, stripped of its swagger and no longer the biggest U.S. bank. And investors, after pummeling the company for two years, finally like what they see.

The stock jumped 2.4 percent Thursday after Bank of America reported that it made $2 billion from October through December, reversing a $1.2 billion loss from a year earlier. The stock is up 25 percent this year.

The bank reported fourth-quarter revenue rose 11 percent to $25.1 billion from last year. For the year, the bank made $1.4 billion. It lost $2.2 billion in 2010.

Almost none of the profit came from improvements in Bank of America's basic businesses. In fact, it lost money in the fourth quarter in real estate and investment banking.

But the bank raised $2.9 billion by selling its stake in China Construction Bank and $2.4 billion more by selling debt and issuing common stock to replace its higher-cost preferred stock, which paid out annual dividends as high as 8 percent.

"We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company," CEO Brian Moynihan said.

The cash strengthens Bank of America's balance sheet, a key factor as it undergoes a Federal Reserve "stress test" and tries to meet international standards that demand banks hold more cash against risky loans.

"It would be a big step if Bank of America can prove to the Street it doesn't need to raise additional capital," said Shannon Stemm, a banking analyst with Edward Jones, a financial advice company.

Paying $4 billion for Countrywide Financial, the nation's largest subprime mortgage lender, in 2008 seemed like a bargain but has cost Bank of America tens of billions in mortgage losses, fines and litigation.

The bank has also been forced to buy billions of dollars' worth of mortgages from government-sponsored mortgage financing companies Fannie Mae and Freddie Mac.

Investors happy with Bank of America's slimmed-down approach 01/19/12 [Last modified: Thursday, January 19, 2012 9:37pm]
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