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BAC shares slide 5% premarket on earnings report

Bank of America Corporation today reported net income of $6.2 billion, or $0.56 per diluted share, for the third quarter of 2011, compared with a net loss of $7.3 billion, or $0.77 per diluted share, in the year-ago period. Revenue, net of interest expense, on a fully taxable-equivalent (FTE) basis 1 rose 6 percent to $28.7 billion.

There were a number of significant items that affected results in both periods. The most recent quarter included, among other things, $4.5 billion (pretax) in positive fair value adjustments on structured liabilities, a pretax gain of $3.6 billion from the sale of shares of China Construction Bank (CCB), $1.7 billion pretax gain in trading Debit Valuation Adjustments (DVA), and a pretax loss of $2.2 billion related to private equity and strategic investments, excluding CCB. The fair value adjustment on structured liabilities reflects the widening of the company’s credit spreads and does not impact regulatory capital ratios. The year-ago quarter included a $10.4 billion goodwill impairment charge. Details on the significant items are included in the revenue and expense section of this press release.

“This quarter’s results reflect several actions we took that highlight our ongoing transformation toward becoming a leaner, more focused company,” said Chief Executive Officer Brian Moynihan. “The diversity and depth in our customer and client offerings provided some resiliency in a very challenging environment.”

“Our focus this quarter was on strengthening the balance sheet by selling non-core assets and building capital to position the company for future growth,” said Chief Financial Officer Bruce Thompson. “In that regard, we accomplished a great deal. We reduced the size of our balance sheet by $42 billion from the second quarter of 2011, nearly doubled our Tier 1 common equity ratio since early 2009, and continued to have strong liquidity levels even after significantly reducing both short- and long-term debt.”

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Apparently the market has not been fooled by BAC’s latest earnings release as the stock is down 5% in pre-market trade around $5.70 (as of 7:30 am est). This should bode well for the trade we recommended to put on BAC last week, purchasing the $6 strike puts expiring this week for $0.24. So long as the stock stays below $5.76 throughout the week we’re guaranteed to break even on the trade. But we’re not just looking for breakeven, we’re looking for some profits. With the stock slipping 5% (and hopefully more before the day is done), we expect the premium on the puts to rise somewhere between $0.35-$0.50. All in all, we expect this trade to work out in favor just like we had hoped icon smile BAC shares slide 5% premarket on earnings report

Should the dip in BAC get bought, look for a breakout above yesterdays close ($6.03), to signal that it might be best to exit the trade.

 

source: http://www.thestreet.com/story/11280088/1/bank-of-america-reports-third-quarter-2011-net-income-of-62-billion-or-056-per-diluted-share.html

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