TWO of America's largest financial services companies reported better-than-expected third-quarter earnings yesterday despite one posting a loss of more than $7bn (€5.1bn) and the other posting a 40pc decline in profits.
Bank of America, the largest lender in the US, reported a loss of $7.3bn on a one-time charge linked to the cost of card transactions.
Overall though, the bank's earnings without the charge were better than most analysts had expected. For the third quarter, Bank of America reported earnings of $3.1bn, or about $0.27 a share.
This clobbered expectations on the street which were predicting about $0.16 per share. Goldman Sachs, which also reported yesterday, said it made a net profit of $1.9bn for its third quarter.
Analysts said the results showed the banking sector may not be as damaged as many analysts had thought even though Goldman Sachs warned the economy was still very sluggish in many areas.
Shares in Goldman Sachs posted their biggest gain in six weeks following the results, while shares in Bank of America were little changed.
"Goldman's lining itself up for what should be a good performance in a recovering environment," said stockbroker Brad Hintz.
"We're probably at the low point for Goldman."
Goldman Sachs's potential losses from faulty mortgages aren't large because the firm played a minor role in creating such loans as well as in packaging them into securities, the bank said yesterday.
Bank of America's loss was tied to new rules on consumer accounts and credit cards. The bank would have made a profit of about $3bn without the £10.4bn provision.
A probe by attorney generals in all 50 US states focusing on faulty foreclosure documents has raised concerns among investors that lenders such as Bank of America will be forced to buy back billions of dollars of loans.
The bank said this week it plans to resume filing foreclosure affidavits after an October 8 halt to review its procedures.
Executives have sought to soothe investor concern last week that mishandled foreclosures may have caused a wave of erroneous evictions, or that the bank may be facing massive expenses tied to fixing faulty court filings.
"The foreclosure document issue is a minor problem, but the headlines related to that are a major problem for Bank of America," Paul Miller, an FBR Capital Markets analyst.
"Just contesting these foreclosures drags out the time until we have some resolution." (Additional reporting Bloomberg)