OREANDA-NEWS. According to Fitch Ratings, the key to improved earnings for Bank of America Corporation (BAC) over the near-term is a continued focus on expense management. Overall expenses for BAC were down relative to the year-ago quarter, and essentially flat from the sequential quarter.

However, Fitch expects BAC to continue to reduce expenses in its Legacy Assets & Servicing segment, continue to optimize multiple delivery channels, as well as continue to be judicious about its staffing levels, all of which it continued to execute on during 2015.

Bank of America Corporation (BAC) reported fourth quarter 2015 (4Q15) net income of $3.3 billion down from $4.3 billion in the sequential quarter but up from $3.1 billion in the year-ago quarter. On a full-year basis, BAC reported net income of $15.9 billion, up from $4.8 billion in the prior year, which was significantly impacted by litigation charges related to legacy matters.

BAC's 4Q15 results equated to a 0.61% annualized return on average assets (ROAA) down from 0.79% in the sequential quarter but up slightly from 0.57% in the year ago quarter. The company's 4Q15 annualized return on average equity (ROAE) was 5.08%, down from 6.65% in the sequential quarter, but up from 4.84% in the year-ago quarter.

While these results are starting to stabilize in the absence of large litigation charges, they still remain below the results of peers and Fitch Rating's long-term cost of equity assumption for BAC and others of approximately 10%.

Full-year returns were better with the company's 2015 ROAA coming in at 0.74% up from 0.23% in the prior year, and its 2015 ROAE coming in at 6.26%, up from 1.70% in the prior year, which was marred by significant litigation charges.

Fitch calculated pre-tax profits, which exclude DVA adjustments and various other gains/losses amounted to $4.9 billion, or a 0.92% adjusted pre-tax return on ending assets. This result is down slightly from the sequential quarter, and essentially unchanged from the year-ago quarter.

BAC's total net revenue of $19.5bn was down slightly from the sequential quarter, but up slightly from the year-ago quarter.

Total net revenue in BAC's consumer banking segment was down $40 million from the sequential quarter on higher net interest income (NII), but up $33 million from the year ago quarter on lower non-interest income primarily within mortgage banking.

In BAC's Global Wealth & Investment Management segment, total revenue was down from the year-ago quarters in part due to lower transactional activity and lower market valuations.

Total net revenue in Global Banking was up relative to the sequential and year-ago quarters primarily from higher NII due to increased deposit and loan balances over the year. Additionally, investment banking fees were down due to lower underwriting revenues, particularly within leveraged finance, partially offset by higher advisory fees.

Within Global Banking, BAC took some higher provisioning for loan losses due to some incremental loan growth as well as the company's energy exposures. As of 4Q15 BAC's utilized energy exposure amounted to $21.3 billion, which approximates 2% of the company's total loans and leases.

BAC notes that approximately 39% of the energy exposure noted above is attributable to what it terms higher risk companies in exploration and production and oil field services industries. Additionally, BAC notes that its energy reservable criticized exposure increased to $4.7 billion, or 22% of the energy portfolio, at 4Q15.

Given the comparatively smaller size of BAC's energy exposure to the company's overall balance sheet, Fitch believes this exposure to be manageable at this juncture, though there may be some higher provisioning for these credits in the coming quarters.

In the Global Markets businesses, BAC's trading net revenue was up relative to the year-ago quarter on better results in Fixed Income Currency, & Commodities (FICC), though notably the prior year's quarter was a weak one for BAC. Relative to the sequential quarter total revenue in Global Markets was down amid challenging market conditions across the industry.

In Fitch's view, BAC's liquidity position remains sound with total deposits of $1.2 trillion and a Time to Required Funding (debt coverage at parent) of 39 months.

BAC's Basel III fully phased-in Common Equity Tier 1 (CET1) ratio improved under the advanced approaches to 9.8%. Given that the advanced approaches ratio is the lower of the two, it remains BAC's binding constraint.

While Fitch would note that this CET1 ratio is below the average of some peer institutions, the denominator of the ratio does include a sizeable component of operational risk weighted assets (RWA).

Additionally, BAC is in compliance with the Enhanced Supplementary Leverage Ratio (SLR) at both the bank and parent company.