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Bank of America, With Merrill’s Help, Returns to Profit

A Bank of America loan representative, right, discusses mortgage assistance with clients at an event sponsored by the Neighborhood Assistance Corporation of America on Thursday in Miami Beach, Fla.Credit...Joe Raedle/Getty Images

Bank of America’s acquisition of Merrill Lynch, a marriage made under the storm cloud of the financial crisis, has been the subject of government investigations and shareholder lawsuits ever since it became official in early 2009.

Bank of America’s chief executive, Kenneth D. Lewis, was faulted for paying too high a price and for failing to disclose the brokerage firm’s worsening condition to his shareholders before they approved the purchase. He lost his job as a result, and the bank’s stock has never fully recovered.

In short, just about everybody regarded this deal as a dud.

But on Friday, Mr. Lewis’s successor, Brian T. Moynihan, said surging profit from trading at Merrill Lynch helped to cover continued losses from consumer loans, propelling the bank to a first-quarter profit of $3.2 billion, or 28 cents a share, after two consecutive quarters of losses.

Total revenue was $32 billion, well ahead of a survey of analysts by Thomson Reuters, who had expected revenue of $27.97 billion and earnings of 9 cents a share.

Those strong results were in contrast to losses of $194 million in the last quarter of 2009 and $1 billion the quarter before that. For the year-ago quarter, strong trading results and favorable accounting adjustments led to a profit of $4.2 billion or 44 cents a share.

Mr. Moynihan attributed the improvement to robust gains in investment banking and to a strengthening market for consumer credit. He said the bank’s credit card division had turned a profit of $952 million in the quarter as the level of delinquent accounts declined.

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Bank of America said its credit card unit posted a profit in the quarter, while its mortgage business continued to lose money. Credit...Chris Keane/Reuters

“All our banking segments were able to make money this quarter except for one, home loans,” Mr. Moynihan said, noting that it lost $2 billion. Nonetheless, as credit losses eased, he said, “all of this makes us more confident that the worst of the credit cycle is behind us.”

The bank’s shares declined 5 percent on Friday, to $18.41, as financial stocks were battered by news of a government lawsuit accusing Goldman Sachs of securities fraud.

Bank of America’s results were propelled largely by trading revenue that topped $7 billion, a record, and $4.8 billion more than the previous quarter, officials said.

“It’s safe to say that the Merrill Lynch deal seems to be paying off sooner rather than later,” said Anthony Polini, an analyst at Raymond James and Associates.

The bank, often considered a bellwether for the American economy, had been battered over the last year by huge losses in consumer loans and the $29 billion merger with Merrill Lynch that sank its share price.

Bank of America was the second major bank to report results this week; on Wednesday, JPMorgan Chase announced first-quarter profit of $3.3 billion, topping expectations.

But where JPMorgan Chase had weathered the financial downturn better than most, Bank of America was once considered critically ill, requiring $45 billion in government bailout money. Bank of America paid back the money last year.

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CNBC interview with Brian Moynihan, chief executive of Bank of America, on the bank's quarterly results.

As the nation’s largest lender with branches from coast to coast, Bank of America’s continued recovery could offer a further glimmer of hope for the broader economy, after positive data in recent weeks on jobs and consumer spending.

“The consumer credit cycle seems to be clearing up, pointing towards recovery mode,” said Mr. Polini said. Investors seem to agree. Despite Friday’s declines, bank shares have enjoyed a nine-week rally, he noted.

While optimistic about the economy, Mr. Moynihan said new financial regulations could impinge on revenue as the year progressed. For example, the credit card legislation passed by Congress last year, which is being adopted in phases, could cost the bank $900 million this year, after taxes.

In addition, he said, limits on overdraft charges, partly the result of new regulations, would reduce fee income in the fourth quarter to about $2 billion, compared with $2.8 billion in the fourth quarter of 2009.

Mr. Moynihan said the bank was looking for ways to increase revenue from checking accounts, including monthly service fees on customers with low balances.

In a speech later Friday, Mr. Moynihan noted that the bank’s net credit losses dropped 5 percent in the first quarter compared with the previous one.

“Our earnings story at Bank of America for a while will be a credit-quality story,” he said. “Certainly the level of losses is still high. But the improving credit picture gives us cause to believe that we are solidly on the road to recovery.”

A version of this article appears in print on  , Section B, Page 2 of the New York edition with the headline: Bank of America, With Merrill’s Help, Returns to Profit. Order Reprints | Today’s Paper | Subscribe

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