UPDATE 5-BofA plans $3 bln of new cost cuts;posts 2nd-qtr profit

* Q2 EPS 19 cents vs loss 90 cents a year ago
* Rev $21.97 bln, down slightly from Q1
* Q2 expenses fall 25 pct to $17 billion
* Part two of cost-cut program aims to save $3 bln annually

By Rick Rothacker
July 18 (Reuters) - Bank of America Corp said it
plans to slash costs by $3 billion annually in commercial
lending, investment banking and wealth management, becoming the
latest big bank to take aim at expenses as revenue falls in most
of its businesses.
The second largest U.S. bank cut costs 25 percent in the
second quarter, helping it post a slightly larger than expected
profit of $2.5 billion after posting a loss the year earlier.
Its work force shrank by more than 12,000 from a year ago to
275,460.
The cost cuts come as the bank faces real pressure. It said
its loan book shrank from the same quarter last year. Its
interest income fell 15 percent because of low interest rates.
And investors are pressing the bank to buy back more bad loans
that it made during the housing boom.
The latest round of cost cutting efforts has already begun,
Reuters reported last week. The bank aims to complete cuts in
these areas by 2015. [ID: nL2E8I9BKI]
"The question is, 'Are they cutting fat or affecting their
ability to grow?'" said Jonathan Finger, a frequent critic of
the bank's management, whose Houston, Texas-based investment
firm, Finger Interests Ltd, owns 1.1 million of the company's
shares. "That is a major concern for investors."
Bank of America began the first phase of its cost-cutting
plan in 2011, with the goal of saving $5 billion a year and
eliminating 30,000 jobs by the end of 2014. That phase of the
plan focused on consumer banking and information technology.
The bank did not detail planned job cuts in the latest round
of the plan known as Project New BAC. Executives have said there
would be fewer reductions because capital markets, commercial
banking and wealth management operations have fewer people to
begin with.
The Charlotte, North Carolina-based bank has lagged its
peers in recovering from the financial crisis, largely due to
losses tied to its 2008 purchase of subprime lender Countrywide
Financial.
JPMorgan Chase & Co, Wells Fargo & Co, and
Citigroup Inc in recent days all beat analysts' earnings
estimates, helped by cost-cutting, stronger mortgage business
and better consumer delinquency rates.

Like JPMorgan, Citigroup, and Goldman Sachs Group Inc
, Bank of America posted weaker equity trading revenue.
Underwriting and merger advisory fees also dropped.
Bank of America's adjusted earnings per share of 16 cents
beat the average estimate of analysts of 14 cents per share,
according to Thomson Reuters I/B/E/S. But questions about future
profitability in the current difficult environment pushed the
bank's shares down 3.7 percent to $7.63 in afternoon trading.

Revenue at Bank of America totaled $21.97 billion in the
second quarter, down from $22.28 billion in the first quarter
but up from $13.24 billion a year earlier when it took mortgage
charges. Banks are struggling to boost revenue amid weak loan
demand for many products, low interest rates and new regulations
crimping fees.
To save on interest costs, the bank reduced its long-term
debt by $53 billion in the quarter to $301 billion by allowing
bonds to mature and buying back securities. That move, along
with further planned redemptions, should save the bank about
$300 million a quarter.
"We are fighting with all the arrows in our quiver that we
have," Chief Executive Officer Brian Moynihan told analysts
regarding the bank's declining interest income.
The bank's provision for loan losses fell to $1.77 billion
in the second quarter, its lowest level since the first quarter
of 2007, compared with $3.26 billion a year ago.
Mortgage banking income increased only slightly from the
first quarter to $1.66 billion but was a big improvement over a
year ago, when the bank took charges of more than $20 billion to
cover legal settlements over mortgages and other home loan
related losses.
Mortgage costs "are coming down," said Gary Townsend,
president of Hill-Townsend Capital. "That is very important
because that has been a huge drag over the past three years."

REGAINING MORTGAGE MARKET SHARE
Bank of America had been scaling back its home lending in
the wake of massive Countrywide losses, but said it recaptured
some market share in the second quarter compared with the first
quarter.
The bank made $18 billion in mortgages in the latest
quarter, up from $15.2 billion in the first quarter but down
from $40.4 billion a year ago, when it was still buying loans
from other lenders.
By comparison, Wells Fargo, the largest U.S. home lender,
originated $130 billion of loans in the quarter, including
mortgages purchased from other lenders.
Bank of America still has mortgage issues to deal with.
Mortgage bond investors are trying to get the bank to buy back
some $22.71 billion of loans they say should never have been
sold to investors, up from $16.09 billion in the first quarter
and $9.92 billion in the second quarter of 2011. Claims could
increase in the coming quarters, Bruce Thompson, the bank's
chief financial officer, said on the conference call.
In February, Bank of America stopped selling some mortgages
to government-backed mortgage entity Fannie Mae in a
dispute over requests to buy back soured loans. Thompson said
the disagreement continues and that the fight will likely end in
legal action or a settlement.
The bank added $395 million to its reserves for loan
repurchase requests in the second quarter, up from $282 million
in the first quarter, giving it total reserves of $15.9 billion.
Wells Fargo and PNC Financial Services Inc also padded
their reserves in the second quarter, citing increased
repurchase requests for loans sold off during the housing boom.
In a pact announced Tuesday, Bank of America agreed to pay
$375 million to settle a case brought by bond insurer Syncora
Guarantee over toxic mortgage-backed securities based on home
loans made by Countrywide. [ID: nL2E8IHG7J]
Analysts peppered Bank of America executives with questions
about when quarterly costs to handle delinquent mortgage loans
will start to tail off. The bank spent $2.6 billion on those
operations in the second quarter, down slightly from the first
quarter, but far off the $500 million per-quarter the bank
expects in more normal times.
Thompson signaled those expenses have peaked but won't
start going down until next year, after the bank completes work
required under settlements with federal and state regulators.
Bank of America's total loans fell to $892.3 billion from
$902.3 billion in the first quarter as it continued to shed
assets from the credit crisis. A decline in consumer loans
offset an uptick in loans to businesses. JPMorgan, Wells Fargo
and Citigroup showed slight increases in total loans from the
first quarter, as did regional lenders U.S. Bancorp and PNC
Financial in earnings reports on Thursday. [ID: nL4E8II2XG] [ID:
L4E8II356]
Revenue in the bank's signature consumer banking unit was
down 16 percent from a year ago but off just 1 percent from the
first quarter, as fee income increased. The bank remains focused
on cutting costs in the unit, including shedding 57 more
branches during the quarter, and continues to test new account
packages, Moynihan said.
The bank said it made better-than-expected progress in
building capital in the quarter. Its projected Tier 1 common
capital ratio under so-called Basel 3 standards reached an
estimated 8.1 percent of risk-weighted assets. The bank had
previously said it would be above 7.5 percent by year-end.
Thompson said the bank is cooperating with regulatory
inquiries over bank lending rates, such as the London interbank
offered rate (LIBOR), but declined to provide details.