Bank of America Corp trounced expectations with its first quarterly profit since the summer of 2009 as it generated outsized bond trading revenue and set aside less money to cover bad loans.

The strong investment banking results show the Merrill Lynch acquisition -- widely criticized at the height of the financial crisis for being too costly -- is delivering results for the largest U.S. bank by assets.

The lower credit provision signals that Bank of America's borrower defaults may be leveling out after rising for nearly two years, as the U.S. economy broadly shows signs of recovery.

Across the board, they have benefited in this change in the weather, said Michael Holland, chairman of Holland & Co in New York. They were hit by a significant hurricane a year ago and now, if anything, they have a strong wind behind their backs.

Chief Executive Brian Moynihan has reshuffled management and is expanding Merrill Lynch's commercial and investment banking business in a bid to keep boosting the bank's profits.

Moynihan just finished his first quarter at the helm of the bank, after predecessor Kenneth Lewis generated two quarters of losses in the second half of 2009 and stirred tremendous controversy with his acquisitions.

Bank of America said first-quarter net income increased to $2.83 billion, or 28 cents per share, from $2.81 billion, or 44 cents per share, a year earlier.

Analysts on average had forecast a profit of 9 cents per share, according Thomson Reuters I/B/E/S.

The decrease in the bank's credit provision more than offset a decline in overall revenue. Revenue fell 11 percent to $32.3 billion as fee income tumbled nearly 22 percent to $18.2 billion.

Five of the bank's six major business units were profitable during the quarter.

MERRILL LYNCH BOOST

Earnings were driven by arguably Lewis's most controversial deal in his nearly decade-long run as CEO -- the Merrill Lynch purchase, which closed in early 2009 and was announced around the same time Lehman Brothers Holdings Inc was filing for bankruptcy.

Bank of America's global banking and markets division generated $3.2 billion of profit in the quarter, the best results of the six major business units. Record sales and trading revenue, particularly in fixed income, currencies and commodities, drove that profit.

The credit situation seems to be getting a little better but the capital markets business is helping a lot, said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

The strong investment banking results mirror those of key Bank of America rival JPMorgan Chase & Co, which beat earnings expectations on Wednesday with a $3.3 billion profit.

As that business surged, Bank of America's provision for credit losses decreased by $3.6 billion, to $9.8 billion.

With each day that passes, the 2010 story appears to be one of continuing credit recovery, and our results reflect a gradually improving economy, Moynihan said in the earnings announcement.

Bank of America's first-quarter per-share earnings were lower because of an increase in shares outstanding. The bank sold shares in the 2009 fourth quarter to raise funds to repay a government bailout.

The bank ended the quarter with $2.3 trillion in assets and $976 billion in loans and leases, little changed from a year earlier.

Bank of America shares were fractionally lower at $19.38 in premarket trading. At Thursday's close, the shares had risen 29 percent this year, compared with a 34 percent rise in the KBW Bank Index.

(Reporting by Joe Rauch; Editing by John Wallace)

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