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Bank of America execs highlight lower expenses but run into analyst pushback


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Bank of America execs highlight lower expenses but run into analyst pushback

managementhighlighted the bank's ability to handle revenue headwinds by driving downexpenses during a call to discuss first-quarter , but at least one analyst wasvery clear that he thought the bank could do more.

CFOPaul Donofrio said the company was able to reduce core expenses by $300 millionbetween the 2015 fourth quarter and the 2016 first quarter. Of that, $100million related to roll-off from the Merrill Lynch acquisition and theremaining $200 million was driven by the bank's simplification initiative, hesaid.

"Ifyou look at the supplement, you're going to see expenses came down in nearlyevery category," Donofrio said.

Duringprepared remarks, management said the expense decline helped the bank deal withlower revenue from persistently low interest rates and volatile capital marketsthat discouraged client activity. Kicking off the question-and-answer portionof the call, James Mitchell, an analyst with Buckingham Research Group praisedthe bank's efforts, saying the reduction in expenses was greater than expected.

Butlater on, Mike Mayo, an analyst with CLSA Americas with a of criticizing Bank of America,pressed management on why the improvements were not driving up earnings.

"Whyis Bank of America less efficient than peers? And it's tough on the outside toknow because you have $2 billion of expenses in other that's not allocated tothe business line," Mayo said, while also pushing for an estimation onwhen return on equity would get into the double digits.

Managementresponded that they are continuing to work on reducing expenses from legacyassets and that return on tangible common equity sits at 8.5% after adjustingfor accounting changes and should improve as expenses are further whittled.Mayo then pressed on why the expenses that have been lowered have not increasedearnings, to which management responded that they continue to prioritizeinvestment in growth opportunities.

Lookingforward, management said they continue to push on lowering expenses. CEO andChairman Brian Moynihan said the bank will get an added benefit from lowerregulatory expenses.

Followingthe April 13 releases of the Federal Reserve's feedback for the bank's livingwill, Moynihan said the bank is well-positioned to finalize a credibleresolution plan. He said the bank has spent $250 million on external parties tohelp with the process.

"That'sall in the run rate as we speak and ultimately [should] provide relief as weget through it," Moynihan said.