At Bank of America, Merrill Lynch Giveth and Merrill Lynch Taketh Away

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Bank of America reported a small quarterly profit today. But then again, it's a wonder the bank made any money at all after paying out part of a humungous $2.43 billion settlement over allegations that it misled investors about its acquisition of Merrill Lynch during the darkest days of the financial crisis. Ironically, it was Merrill's investment banking prowess which gave the bank a 359% increase in fixed income revenue over Q3 of 2011, and that helped it beat analyst expectations.

The bank reported a paltry $340 million in net income, compared to $6.23 billion for the same quarter a year earlier. Earnings re-calculated on a diluted per share basis actually amounted to zero, compared to 56 cents in Q3, 2011. This still beat a poll taken by Thomson Reuters in which analysts had expected a six cents a share loss.

Bank of America had warned investors that the Merrill related class-action settlement, along with a British tax bill and an accounting adjustment related to the value of its debt, would take away 28 cents a share from its third-quarter earnings, according to Dealbook.

More heads to roll

Bank of America is in the midst of broad effort to trim $8 billion in annual expenses, which includes the elimination of 30,000 jobs. Last month, CEO Brian Moynihan announced the bank would be laying off as many as 16,000 employees by the end of this year. The bank’s full-time headcount declined five percent in the third quarter is down about six percent for the year. It would have shed about 15 percent if it hadn't added thousands of new hires to work through troubled mortgages, according to the AP.

From our UK Editor

A few weeks' ago Christian Meissner, Bank of America's global head of corporate and investment banking started sounding a little defensive. The bank has the right M&A team in place, said Meissner, but it might be a while before the right team produces the goods. "M&A is a long-term relationship game," Meissner said, "it takes three to five years to build that.”

Today it becomes apparent was he was talking about. Last year Bank of America Merrill Lynch hired around 30 Managing Directors in Europe - according to some sources. Does it have anything to show for that? No. The bank's third quarter results reveal that M&A advisory fees were down 30% year-on-year in the first nine months of 2012. This compares to a mere 3% decline at Goldman Sachs and a mere 4% decline at Citigroup over the same period. Meissner and the new MDs don't seem to be doing that well. Admittedly, JPMorgan's M&A revenues fell 26% over the past nine months - but JPMorgan hasn't ramped up its M&A cost base.

While Bank of America's M&A bankers may be justifying their existence, the same cannot be said of its fixed income bankers. In the third quarter, excluding DVA changes, they achieved a monumental 359% increase in revenues - far outweighing the performance of any rivals. This may have something to with the disaster that was 3Q last year in Bank of America's fixed income business, but it still looks pretty good. So far this year, FICC revenues at the bank are up 20% ex-DVA. Fixed income salespeople and traders may rank ahead of M&A bankers when it comes to payday.

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