MULTIMEDIA

Bank of America yesterday announced $4.2 billion in earnings, significantly beating Wall Street expectations. The latest earnings pose a strong contrast to the Charlotte based bank's fourth quarter loss of $2.4 billion. WFAE's Simone Orendain reports on what was behind the numbers:

Bank of America says it made a profit of $2.8 billion after paying $1.4 billion in shareholder dividends.

The bank says the first quarter gains came mostly from its capital banking business, particularly from its newest acquisition, Merrill Lynch. Merrill Lynch contributed $3.7 billion to the bank's revenues.

Michael Garland is director of value strategies at CtW Investment Group. The group represents pension-holders that are unhappy with the Merrill Lynch acquisition.

"Shareholders are pleased to see good numbers but those numbers include a lot of one time items," he says.

Those items include B of A selling a significant portion of its stake in China Construction Bank, adjusting debt related to Merrill Lynch and selling off or refinancing other debt. These added up to about $7 billion.

Garland says the strong capital banking numbers are helped by an accounting practice that allows banks to value their assets- including troubled ones- based on assumptions.

UNC Chapel Hill Finance Professor Anil Shivdasani sees it as a way for banks to avoid writing down losses.

He says, "That really is the sort of ultimate paradox that we're facing today and that is that for some of these assets there simply does not exist an active and freely tradable market."

Shivdasani also analyzes financial institutions for Citigroup. He says some of these securities are so complex that banks choose to hang on to them, rather than take a deeper loss. In this process, the banks assign a value to them.

Still, Shivdasani says major banks like Bank of America are now in a position to start trading in them again. He says this is what helped boost the B of A's capital banking numbers.

According to Bank of America's first quarter earnings release, the Merrill Lynch division was number one in volume for trading in loans that have strong returns. The bank marked down troubled assets such as collateral debt obligations and others by $1.7 billion.

And so, Shivdasani says in an ironic twist the practice that started the banking industry's troubles is what's saving it- for now.

I really don't understand the hoopla about BoA's acquiring Merrill. It will over time prove to be a brillant move and highly profitable if investors give it time. All banks are down; times are tough for financials, but BoA's acquisition of Countrywide and Merrill will prove to be great and particularly Merrill, which was bought at a bargain price although in the short term that may seem had to grasp. Shame on the whinners. Conneticutts pension manager should be fired. How much of the toxic assets does she own in their portfolio?