With multi-billion dollar mortgage-backed securities settlements mostly in the rear view mirror, Bank of America and Morgan Stanley both posted solid results in their respective Q4 and full year 2015 earnings statements released on Tuesday.
Without the legal expenses and related charges that plagued them in 2014, Bank of America reported a net income of $15.9 billion for the full year of 2015—more than triple the bank’s reported net income of $4.8 billion for 2014, a year in which the bank entered into a $16.65 billion settlement with the Justice Department and several states over the sales of faulty MBS. In fact, Bank of America’s earnings for 2015 were the highest for the bank since the pre-crisis year of 2006, when it reported a record net income of $21.1 billion.
Bank of America’s Q4 net income was reported at $3.3 billion, down from $4.5 billion the previous quarter but up from $3.1 billion year-over-year.
While Bank of America’s total mortgage and home equity production was up by 13 percent in Q4 (from $15 billion to $17 billion), the bank’s Legacy Assets and Servicing (LAS) Division— which works with customers who are delinquent on their mortgage payments—saw some major cuts in 2015 due to the reduction in distressed mortgage loan volume. The number of employees in the LAS Division declined by 35 percent in 2015 down to about 11,200, while the number of 60-plus day delinquent loans serviced declined by 46 percent down to about 103,000.
The bank's net chargeoffs for all delinquent loans totaled $1.1 billion in Q4, up from $879 million in Q4 a year earlier. The unpaid balance on nonperforming loans, leases, and foreclosed properties was down by approximately 25 percent over-the-year in Q4, from $12.6 billion down to $9.8 billion, and the ratio for nonperforming loans, leases, and foreclosed properties fell from 1.17 percent down to 1.10 percent year-over-year.
“The 2015 results were our highest earnings in nearly a decade, reflecting the work we’ve done to develop a straightforward operating model focused on responsible growth and doing more business with each customer and client,” Bank of America CEO Brian Moynihan said. “We saw solid customer activity in loan growth, deposits, and wealth management asset flows, and we returned more capital ($1.3 billion) to our shareholders. As we build on this progress, we will continue to invest in the future and manage expenses.”
Likewise, with legal cost burdens removed, Morgan Stanley’s reported net income for the full year of 2015 was $6.1 billion, up from $3.5 billion in 2014. In February 2015, Morgan Stanley entered into a settlement with the Justice Department for $2.6 billion to resolve claims that the investment firm packaged and sold toxic MBS in the run-up to the crisis. With litigation costs of $3.1 billion reported for 2014 as a result of the settlement, the firm’s earnings took a significant hit.
“The 2015 results were our highest earnings in nearly a decade, reflecting the work we’ve done to develop a straightforward operating model focused on responsible growth and doing more business with each customer and client.”
Brian Moynihan, Bank of America CEO
The year 2015 started out strong for Morgan Stanley, with net incomes of $2.4 billion, $1.8 billion, and $1.7 billion for the first three quarters, respectively. The firm’s net income for Q4 2015 was $908 million on net revenues of $7.7 billion.
“A strong overall performance in the first half of the year was impacted by difficult market conditions in the second half that dampened trading activity,” said James P. Gorman, Chairman and CEO of Morgan Stanley. “In the fourth quarter we took action to meaningfully restructure our fixed income business on a capital and expense basis. We enter 2016 with a continued focus on managing expenses across the firm and driving up returns for our shareholders.”
Click here to view the Q4 and full year 2015 earnings statement for Bank of America.
Click here to view the Q4 and full year 2015 earnings statement for Morgan Stanley.