BofA profits narrowly miss estimates Bank of America's net income rose to $2.5bn in the third quarter as credit quality improved, but mortgage banking and fixed income trading held back progress at the second-biggest US bank by assets. Net income surged from $340m in the same period a year ago when the bank paid a multibillion-dollar charge to settle a legal case. Credit quality improved, allowing the bank to release $1.4bn of reserves held against bad loans, helping to boost earnings. However, the bank suffered from similar problems to some of its peers: a sharp decline in revenues from homeowners refinancing their mortgages and a plunge in bond trading. Overall BofA's revenue fell 1.5 per cent to $22.2bn, excluding the impact of a change in the value of the bank's own debt. Revenue from trading in fixed income, commodities and currencies fell by 20 per cent year on year to $2bn, slightly better than Citigroup's decline of 26 per cent announced on Tuesday. Both BofA and Citi cast some of the blame at Washington, accusing politicians of deterring investors from trading because of uncertainty over the US budget. But Bruce Thompson, chief financial officer, also acknowledged the company underperformed for the second successive quarter in bond trading, traditionally a strength of the bank. "We need to do better in the FICC business," he said. Mortgage banking income also declined, with the pipeline of business that is agreed but not booked down 59 per cent from the second quarter. Separately US Bancorp, the sixth-biggest US bank, reported flat net income of $1.5bn, noting the sharp slowdown in mortgage refinancing. BofA's bright spots included wealth management, where BofA's Merrill Lynch brokerage advises clients on buying and selling stocks and bonds, and the equities trading business where revenue rose 36 per cent from a year ago to $1bn. Analysts homed in on litigation costs, which almost doubled to $1.1bn. Executives said such costs would continue to be "lumpy." BofA's growth has been hampered by its ill-fated acquisition of Countrywide, the mortgage originator, in 2008, which has left a legacy of litigation and losses. The bank declined to disclose total legal reserves as JPMorgan Chase did for the first time this quarter. JPMorgan is in talks with US authorities including the Department of Justice to pay $11bn to resolve allegations it mis-sold mortgage securities. BofA is still embroiled in a potentially expensive settlement in New York. A judge is set to rule on the $8.5bn settlement between BofA and a group of investors that bought mortgage-backed securities from Countrywide, including BlackRock and Pimco. Analysts have raised concerns that if the settlement is not approved, the bill could rise sharply. Earnings per share increased to 20 cents from zero in the third quarter of 2012. BofA said its tier one common capital levels under the new Basel III standards were up to 9.9 per cent, from 9.6 per cent, equity to risk-weighted assets. Shares rose 2 per cent to $14.58 in line with bank stocks that increased on hopes of a debt deal in Congress.