Why Bank of America's profits are less than they seem

Bank of America (BAC) Thursday reported a fourth-quarter profit, but it's unlikely to repeated because it was based on one-time items and lower expenses for bad loans. The bank also benefitted from not having to pay any penalties related to mortgage securities, a situation that will not last much longer.

The bank reported it had fourth quarter earnings of 15 cents a share compared with a loss of $1.2 billion, or 16 cents a share, in the same period in 2010. Revenues rose 11 percent to $25.1 billion. The results beat analyst estimates and allowed BofA to record a full-year profit of 1 cent a share or $1.4 billion.

The profit was the result of a superbly timed sale of BofA's stake in China Construction Bank, which brought in $2.9 billion, as well as $2.4 billion from selling debt and exchanging its higher-cost preferred stock for common stock.

The issue of mortgage security litigation harmed the bank's finances and will continue to do so for some time. BofA recorded a $1.5 billion mortgage-related litigation expense while setting aside another $263 million relating to investor challenges to mortgage bonds the bank sold leading up to the meltdown. BofA is being sued by numerous parties because of its disastrous purchase of Countrywide Financial. While no one knows how much the total bill will be it is likely to involve the word "billion." A report by Citigroup said the bank may require as much as $32 billion in additional capital to cover mortgage-related legal costs, despite having set aside $37 billion so far.

Like other banks, BofA's investment-banking arm recorded a loss last quarter. The unit posted a $443 million fourth-quarter loss, following a $302 million loss in the preceding quarter. With problems in Europeand likely China continuing, these losses will continue. Give CEO Brian Moynihan credit for trying to put a good face on it, though. Last month he pointed out that investment-banking results had improved from the third quarter, when revenue plunged more than 70 percent.