* New products, economy key to profits, CEO says
* Bank "chipping away" at legal issues
* Stress test results loom for second-biggest U.S. bank
By Rick Rothacker
CHARLOTTE, N.C., March 1 (Reuters) - Investors are starting to recognize Bank of America Corp's (BAC.N) efforts to build capital and streamline operations, but the bank still needs to show it can boost profits, Chief Executive Officer Brian Moynihan said in an interview this week.
One promising sign is the second-largest U.S. bank by assets is attracting new customers for innovative services such as mobile banking, Moynihan said. Improvement in the U.S. economy is also key to the bank's profits, he said.
"We’ve been for the last couple of years transforming the company," Moynihan told Reuters in his office at the bank's Charlotte headquarters. "I think the market now realizes the progress we’ve made on that. Now it’s all about, how do we drive the earnings going forward?" [ID:nL2E8DTBB4]
In 2011, the bank's shares fell 58 percent amid concerns about its capital and an embarrassing backlash over a now-canceled debit-card fee. But this year, the shares have rebounded more than 40 percent. In January, the bank reported increased capital levels and an $85 million 2011 profit after losing $3.6 billion for common shareholders in 2010.
The bank's biggest challenges are losses and lawsuits tied to its 2008 purchase of subprime lender Countrywide Financial. The mortgage unit lost $19.5 billion in 2011 as the bank set aside reserves to cover investor requests to buy back soured home loans.
The bank is making progress on its legal issues, but still has work to do, Moynihan said. "We’ve been chipping away at it.”
One way the bank aims to improve profitability is through a cost-cutting program called Project New BAC. The first phase, which is focused on the consumer side of the bank, is expected to eliminate 30,000 jobs over a few years.
Executives are making preparations for the second phase, which will focus on capital markets, commercial banking and wealth management operations. That phase will be ready to be implemented in about two months, Moynihan said. The bank has not decided when to disclose details, he added.
Even as the bank cuts expenses, it is still making investments, the CEO said. The bank is hiring small-business bankers, Merrill Lynch financial advisers and spending $3 billion on technology upgrades, he said.
The next major milestone for the bank is the results of stress tests being conducted on large banks by the Federal Reserve Board. The purpose is to make sure banks would have enough capital to survive another economic downturn or additional market shocks. The Fed is expected to reveal the results in mid-March.
Analysts have said the bank has the weakest capital position among its large-bank peers, but they expect it to pass the test. Unlike other large banks, Bank of America has said it is not seeking permission to increase its penny-per-share quarterly dividend or to buy back more shares.
Before last year’s stress test, Moynihan suggested the bank would receive approval for a modest dividend increase, but the Fed rejected the request.
"I’d say we've done all the work," he said. "We did a good job. We’ll see what the results are when they come out."
(Reporting By Rick Rothacker; Editing by Maureen Bavdek)
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