Net income of $1.99 billion, or 15 cents a diluted share, compared with a loss of $1.24 billion, or 16 cents, a year earlier, according to a statement today from the Charlotte, North Carolina-based firm. While results were boosted by one- time gains on asset sales and reserve releases, the company advanced 2.4 percent in New York trading as investors focused on the stronger balance sheet.

Chief Executive Officer Brian T. Moynihan, 52, is cutting holdings, expenses and staff while raising capital to meet demands from regulators for a larger cushion against losses. So far, $50 billion in assets are gone, and Moynihan’s Project New BAC will eliminate at least 30,000 jobs as the firm seeks to save $5 billion annually. He’s also aiming to quell disputes over faulty mortgages that have cost the bank about $40 billion.

“The biggest shock in the quarter was, nobody improves their Tier 1 common ratio by 121 points in 90 days,” said Thomas Brown, CEO of Second Curve Capital LLC, in an interview on Bloomberg Television’s “In the Loop,” with Betty Liu. “It’s going to survive, and its capital ratios are a lot stronger today than we all thought yesterday.” Brown has owned Bank of America shares and is a Bloomberg contributing editor.

More Capital

Tier 1 capital, a measure of the ability to absorb losses, surged to 9.86 percent from 8.65 percent in the third quarter, beating the lender’s December forecast of about 9.2 percent. Revenue gained 11 percent from the same period in 2010. For all of 2011, Bank of America said it earned $1.4 billion, compared with a $2.2 billion loss in 2010, as revenue dropped 15 percent.

Bank of America rose 16 cents to $6.96 at 4:15 p.m. in New York, leading the Dow Jones Industrial Average (INDU), and advanced as much as 7.2 percent during the day.

Moynihan cited a “gradually improving economy” for a 13 percent rise in commercial and industrial loan balances. Consumer real estate posted a $1.46 billion loss, narrower than a year earlier. Global banking and markets swung to a net loss of $433 million from net income of $669 million. Revenue in the unit declined 31 percent, primarily driven by lower sales and trading revenue and investment banking fees.

One-Time Items

The quarterly results were aided by one-time pretax gains including $2.9 billion from selling most of its remaining stake in China Construction Bank Corp., $1.2 billion on an exchange of preferred securities, and $1.2 billion on sales of debt securities. The company put aside 43 percent less for credit losses, or about $2.2 billion less than a year earlier.

Expenses tied to bad mortgages included $1.5 billion for litigation and $263 million for buying back soured home loans from investors. A year earlier, the bank booked a $2 billion impairment at the home-loan unit.

“There’s a lot of one-time charges and gains in there,” Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said in a Bloomberg Television interview. “On a core basis, it looks like they came in below our numbers. On one side people like the capital position, but the earnings side to us, it was kind of weak.”

Stripped of one-time items, the results add up to a quarterly loss of about 18 cents a share, according to a research note from David Trone at JMP Securities LLC in New York, who has a “market perform” recommendation on the shares. “We would expect performance to fade today as investors process the segment results, which were generally disappointing.”

Asset Sales

Bank of America is selling assets deemed risky by regulators and stockpiling earnings to comply with new international rules on capital meant to protect against a future financial crisis. The company won’t ask regulators for permission to increase its dividend or share buybacks this year, Moynihan said today during a conference call.

The bank’s target is to reduce so-called risk-weighted assets to $1.75 trillion by the end of this year, a $50 billion improvement from an earlier goal. Lowering riskier holdings means the bank has to retain less capital to meet new standards.

“The amount of income related to the risk-weighting is totally upside down” for some assets the firm will unload, Chief Financial Officer Bruce R. Thompson said during a conference call with reporters. “I don’t see significant changes from a profitability perspective as we look to get rid of a lot of these assets.”

JPMorgan Chase & Co. (JPM) supplanted the bank as the biggest U.S. lender by assets last year. Bank of America’s divestments during the year included 23.5 billion shares of China Construction, a Canadian credit-card business and private-equity stakes in the biggest U.S. Pizza Hut franchisee and hospital operator HCA Holdings Inc.

Second Place

The bank doesn’t need to be the biggest, according to Moynihan, who said in September he wants his company to be more focused. Moynihan also decided to scale back the firm’s mortgage operations, shuttering a correspondent unit that accounted for half of loan volume in the first six months of 2011. In the fourth quarter, Bank of America’s real estate unit reported a 74 percent decline in loan originations.

By doing so, the lender will accumulate fewer mortgage servicing contracts -- one of the assets it’s been selling because the new regulations compel banks to hold more capital if they own riskier assets.

Rivals may already be taking up the slack in mortgage lending. Wells Fargo & Co., the No. 4 U.S. bank by assets, posted a 20 percent rise in fourth-quarter income to $4.11 billion as new home loans rose 35 percent from the prior three months. U.S. Bancorp, ranked fifth by deposits, said profit advanced 39 percent to $1.35 billion.

Trading Declines

Earnings dropped at the biggest New York-based banks as trading slumped in the last three months of 2011. Earnings fell 23 percent to $3.73 billion at JPMorgan, while Citigroup Inc. (C), the No. 3 bank, said income slid 11 percent to $1.17 billion.

“Can they grow?” said Robert Hagstrom, a portfolio manager at Legg Mason Funds Management in a Bloomberg Television interview. “I know they’re undervalued, I know they’re trading at a big discount to what they’re worth, but what I’m trying to figure out is, where does the growth come from here?”

Moynihan’s success may hinge on how well he deflects future costs of refunds, writedowns and lawsuits stemming from faulty mortgages and foreclosures -- most of them inherited in the 2008 takeover of Countrywide Financial Corp. They total about $40 billion since 2007, and another $12 billion to $32 billion may lie ahead, according to a Citigroup estimate.

Those expenses helped send the lender’s stock plunging 58 percent in 2011, the worst showing in the Dow Jones Industrial Average. Bank of America’s 25 percent gain this year has led the 30-company Dow as investors bet that an improving U.S. economy will buoy earnings.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Rick Green at rgreen18@bloomberg.net

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