Bank of America profit off 77%
$6b of set-asides for bad loans ensure 3d consecutive drop
CHARLOTTE - Bank of America Corp., the second-largest US bank, said profit dropped for a third straight quarter as the company set aside $6.01 billion for bad loans.
First-quarter net income declined 77 percent to $1.21 billion from $5.26 billion a year earlier, the Charlotte-based bank said yesterday. The results fell short of analysts' estimates and sent the bank's stock down 95 cents, or 2.5 percent, to $37.61 in New York trading.
Chief executive Kenneth Lewis scaled back a January forecast of 20 percent earnings growth this year after reporting the two worst quarters since he took over in 2001. Lewis said he now expects "sequential profit improvement" for the rest of 2008. The bank's consumer unit, which contributed more than 60 percent of operating income in 2007, faces a nationwide jump in unpaid debt and the highest unemployment rate since 2005.
"The first quarter was much worse than our expectations three months ago," Lewis said on a conference call. "It's too early to strike up the band and say that happy days are here again."
Revenue fell 6 percent to $17.3 billion, while earnings per share shrank to 23 cents from $1.16. Profit decreased 59 percent in the consumer and small-business unit, and dropped 92 percent at the corporate and investment bank. Results included $1.31 billion in trad ing losses and $2.72 billion in costs for uncollectible loans.
Home equity, home builder, and small-business loans were "particularly" affected by the slowing economy, the bank said.
"It's quite a bit below expectations," said Walter "Bucky" Hellwig, senior vice president of Morgan Asset Management in Birmingham, Ala. "They are paddling upstream with regards to credit losses and credit quality."
Lewis affirmed the bank's focus on US consumers, calling Bank of America's franchise "the best in the world."
Merrill Lynch & Co. and Citigroup Inc., both based in New York, and Zurich-based UBS AG have taken write-downs of about $105 billion since the start of 2007, mostly because of the collapse of the US subprime mortgage market, according to Bloomberg data.
Citigroup, the biggest US bank by assets, reported a first-quarter loss last week of $5.1 billion, smaller than analysts' most pessimistic estimates. New York-based JPMorgan Chase & Co., ranked third, said earnings declined 50 percent. Wachovia Corp., ranked fourth, an unexpected loss of $393 million.
Bank of America stock slid 8.1 percent in the first quarter, compared with JPMorgan's 1.6 percent drop and Citigroup's 27 percent decline. The 24-member KBW Bank index dropped 11 percent. Bank of America supplanted Citigroup last year as the largest US bank by market value.
Earnings growth should enable the bank to maintain its quarterly dividend of 64 cents, a policy that will be revised if the US economy enters a prolonged recession, Lewis said.
"The real guts of the bank appear to be working well and as they manage their way through the credit crisis, they're going to come out of this in very good shape," said Georges Yard, chief investment strategist at Yared Investment Research in Wayzata, Minn.
The world's biggest banks and brokerages have disclosed $290 billion of write-downs and credit losses since June because of collapsing prices in US mortgage markets.
They've raised more than $160 billion to replenish capital, with Bank of America tapping public investors for at least $13 billion after write-downs and credit losses that totaled at least $8.2 billion before yesterday, according to data compiled by Bloomberg.
