Bank of America Records $2 Billion Gain. But Investors Beware, Read the Fine Print!

Bank of America has reported a profit of $2 billion for the fourth quarter. This amounts to 15 cents per share. However, reading the numbers closer, there is clearly some financial engineering behind the scenes. In its earnings, Bank of America (NYSE: BAC) includes a $2.9 billion gain on the sale of its stake in China Construction Bank, and another $1.2 billion gain from swapping preferred shares for common shares on its balance sheet.

To be sure, the bank's capital ratios and overall balance sheet levels have improved (The Tier 1 Capital Ratio is now 9.86%), which means it should be far from having to raise new equity capital. But nonetheless, with one-time items excluded from the income calculation, Bank of America recorded a net-loss of around $2.1 billion! And that is for only a 3 month period.

Word of Caution: Intelligent Investors beware. Bank of America is doing better than it was during the peak of the financial crisis, but it has such disastrous loans remaining on its books that it is still bleeding billions of dollars every quarter.