Bank of America is back to basics _ slimmed down, stripped of its swagger and no longer the biggest bank in the country. And investors, after pummeling the company for two years, finally like what they see.
The stock jumped 2.4 percent Thursday after Bank of America reported that it made $2 billion from October through December, reversing a $1.2 billion loss from a year earlier. The stock is up 25 percent this year.
Almost none of the profit came from improvements in Bank of America's basic businesses. In fact, it lost money in the fourth quarter in real estate and investment banking.
But the bank raised $2.9 billion by selling its stake in China Construction Bank and $2.4 billion more by selling debt and issuing common stock to replace its higher-cost preferred stock, which paid out annual dividends as high as 8 percent.
"We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company," CEO Brian Moynihan said.
The cash has strengthened Bank of America's balance sheet, a key factor as it undergoes a Federal Reserve "stress test" and tries to meet international regulatory standards that demand banks hold more cash against risky loans.
"It would be a big step if Bank of America can prove to the Street it doesn't need to raise additional capital," said Shannon Stemm, a banking analyst at Edward Jones, a financial advice company.
After the stock dropped 63 percent drop in 2010 and 2011, Bank of America is eager to start over. But it won't be easy.
Paying $4 billion for Countrywide Financial Corp., the nation's largest subprime mortgage lender, in 2008 seemed like a bargain but has cost Bank of America tens of billions in mortgage losses, fines and litigation.
"The biggest problem with Bank of America is that you never know what litigation expense lurks around the corner," Stemm said.
The bank has also been forced to buy billions of dollars' worth of mortgages from the government-sponsored mortgage financing companies Fannie Mae and Freddie Mac.
In 2011, the bank lost about $14 billion just on legal settlements tied to mortgages issued in years past. On Thursday, the bank said it put aside an additional $1.5 billion in the fourth quarter for future litigation, most of it tied to mortgages.
In addition to the legal costs, the Federal Reserve last year refused to let Bank of America increase its stock dividend, citing uncertainty about the depth of its mortgage problems.
It was the only denial issued to any of the four largest U.S. banks by the Fed, which is closely monitoring how the largest banks use their cash since the bailouts of 2008.
This year, Bank of America hasn't asked the Fed to raise its dividend.
As the U.S. economy slowly comes back, investors are betting Bank of America is poised to capture some of that growth. But that won't be easy, either.
Loans to people and businesses aren't as profitable as they were before the financial crisis. Not only are interest rates at historic lows, but regulators have limited the fees banks can collect for overdrafts and late credit card payments. The government has also reduced the fees banks can ollect from stores on debit-card transactions.
Bank of America knows something about debit card fees. Last fall, it caused a public uproar when it announced it would charge customers $5 a month to use debit cards. The bank quickly backed off.
Bank of America serves about half of American households, and its results showed that housing continues remains a concern in the economy. The bank's real estate business lost $1.5 billion after a 74 percent decline in new home loans. The bank lost some market share and closed a division that helped third-party home lenders.
But Americans seemed to be getting their financial houses in order by paying off more debt on time.
Bank of America, one of the largest credit card issuers, said customers who paid bills a month late declined for the 11th consecutive quarter. New credit card accounts also grew 53 percent, and the division posted a profit of $1 billion.
Bank of America's investment banking business reported a loss of $433 million due to lower investment banking fees and lower sales and trading driven by the rocky stock and bond markets in the last three months of the year.
The bank's quarterly earnings came to 15 cents per share, which was less than the 22 cents expected by analysts surveyed by FactSet, a provider of financial data. The earnings were in line with other estimates.
The bank reported fourth quarter revenue rose 11 percent to $25.1 billion from last year. For the year, the bank made $1.4 billion. It lost $2.2 billion in 2010.