Bank of America Posts Third-Quarter Loss on Defaults (Update4)
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By David Mildenberg
Oct. 16 (Bloomberg) -- Bank of America Corp., the biggest U.S. lender, posted its second quarterly loss in less than a year, unable to shake off effects of the economic contraction that drove the company to take two taxpayer bailouts.
The $1 billion third-quarter loss, or 26 cents per diluted share, compared with a profit of $1.18 billion, or 15 cents, a year earlier, the Charlotte, North Carolina-based bank said today in a statement. The loss was more than analysts estimated and the only one posted by the nation’s three biggest lenders. Bank of America dropped 4.1 percent in New York trading.
The quarterly report will be the last supervised by Chief Executive Officer Kenneth Lewis, 62, who retires Dec. 31 after regulators and shareholders criticized his pursuit of Merrill Lynch & Co. The bank reported a fourth-quarter loss in 2008, its first in 17 years, and Lewis is trying to lead a rebound while fending off state and federal probes of the Merrill deal. He agreed yesterday to give up his 2009 salary and bonus.
“The idea that the financial crisis is over is a fantasy and it looks like the numbers bear that out,” said Harvard University professor Niall Ferguson on Bloomberg Television. “It’s clearly not over for Bank of America.”
Bank of America shares have rebounded fivefold since February when they traded at less than $3, their lowest in more than 20 years, on concern that the U.S. would seize a stake in the company. The stock declined 75 cents to $17.35 at 12:59 p.m. in New York Stock Exchange composite trading.
Succession Plans
Lewis declined to reveal who he’d recommend as a successor or give a timetable during a conference call today with analysts, saying only that the bank has an “appropriate sense of urgency.” He praised wealth management head Sallie Krawcheck and Tom Montag, who runs investment and corporate banking and markets.
“I’ve been very impressed with Tom Montag’s ability to attract really outstanding people when we have lost or needed to fill a position,” Lewis said. “I’m very pleased with the things Sallie Krawcheck is doing.”
Lewis has been under fire for not disclosing losses at Merrill Lynch and plans to pay $3.6 billion in bonuses at the firm before shareholders voted to approve the takeover in December. That sparked investigations by the Securities and Exchange Commission, Congress and attorneys general in New York, North Carolina and Ohio. Shareholders stripped Lewis of his chairman’s title in April.
The bank has agreed to turn over more documents tied to the CEO’s deliberations, and New York State Attorney General Andrew Cuomo has said he might pursue individual bank executives.
Lewis Says ‘Enough’
The decision by Lewis to step down was made when he took some time off, Lewis told analysts today. He reflected on “two- thirds of my life being at the company, and felt like it was the appropriate time,” Lewis said. “I always thought I would intuitively know that, and I did. Forty years with the same company and eight years as CEO was enough.”
The quarter’s results were aided by profit from Merrill Lynch, with gains from trading bonds, stocks and currencies. Losses on home lending and insurance widened to $1.6 billion from $724 million, and the loss on credit cards expanded to $1.04 billion from $167 million.
The bank said the provision for credit losses was $11.7 billion, with $9.6 billion of loans considered uncollectible. Reserves for future losses increased by $2.1 billion, compared with a $4.7 billion addition in the previous quarter, the statement said. The bank’s reserve is now 4 percent of total loans, compared with 4.7 percent at JPMorgan Chase & Co. and 5.9 percent at Citigroup Inc., analyst John McDonald of Bernstein Research said in a report today.
Revenue, Write-Offs
“Credit costs remain high, and that is our major financial challenge going forward,” Lewis said in the statement. “However, we are heartened by early positive signs, such as the leveling of delinquencies among our credit-card customers.”
Bank of America reported total revenue increased 32 percent to $26.4 billion. The total was 13 percent lower than forecast by Chris Mutascio of Stifel Nicolaus & Co.
Revenue from credit cards, brokerage services, investment banking and mortgage banking slid from the previous quarter, and Bank of America’s noninterest income dropped by 31 percent to $14.6 billion. Those declines offset a 57 percent gain in trading account profits.
Bank of America said net write-offs of uncollectible loans rose 11 percent from the second quarter to $9.62 billion. The bank wrote off $3.2 billion of home loans, including home equity loans, during the quarter, up 10 percent from the second quarter. Charge-offs on credit cards increased 5 percent to $2.17 billion.
Industry Profits
JPMorgan Chase & Co., the second-biggest U.S. bank by assets, said this week that third-quarter profit climbed almost sevenfold to $3.59 billion. Goldman Sachs Group Inc. said its income more than doubled to $3.19 billion. Both New York banks repaid their U.S. bailout funds.
Citigroup, the third-biggest U.S. bank, posted a $101 million profit yesterday as CEO Vikram Pandit said he wants to repay $45 billion in U.S. bailout funds as soon as possible. Bank of America also owes $45 billion.
Bank of America, largest in the U.S. by deposits and assets, was hampered during the quarter by accounting rules that require the lender to assess the value of some outstanding debt. Falling prices entitle the bank to take gains, on the theory that the debt could be bought back and retired for less money, while rallies that boost the price lead to charges that reduce reported earnings.
Acquisitions
Bank of America also earmarked $402 million to settle a dispute over a plan to share losses with the Treasury Department on $118 billion of loans and mortgage-backed securities, mostly acquired in the Merrill transaction.
Lewis has said the purchases of Merrill on Jan. 1 and home lender Countrywide Financial Corp. in July 2008 during the worst of the credit crunch bore fruit during the first part of this year, providing most of the company’s earnings growth.
Bank of America expects to add to its 20.5 percent share of U.S. home lending over the next five years, Barbara Desoer, president of home loans and insurance, said in an Oct. 14 interview. Home loans not accruing interest increased by 14 percent to $16.5 billion, or 6.9 percent of the bank’s loans and foreclosed properties, the bank said.
To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net
Last Updated: October 16, 2009 13:11 EDT
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