CHARLOTTE, N.C. — Bank of America Corp. said Monday its profit fell 77 percent in the first quarter, hurt by trading losses and a $3.3 billion increase in reserves for problem loans.
The Charlotte-based bank, set to acquire troubled subprime mortgage lender Countrywide Financial Corp. later this year, reported earnings of $1.21 billion, or 23 cents per share, on $17 billion in revenue. That compared with net income of $5.26 billion, or $1.16 a share, a year earlier on $18.16 billion in revenue.
Analysts on average expected a profit of 41 cents per share on revenue of $16.5 billion, according to Thomson Financial.
The bank's shares rose 4 cents to $38.60 in premarket trading.
Major national banks like Bank of America continue to be besieged on two sides: The bread-and-butter banking business is struggling because of the slumping housing market. With home prices flagging, more people and real estate developers are failing to repay their loans.
The credit crisis is also hobbling the value of many bank investments.
Last week, crosstown rival Wachovia Corp. said it lost $393 million in the first quarter because of bad credit and tumultuous financial markets. Washington Mutual Inc. lost $1.1 billion.
Wells Fargo & Co.'s profit fell 11 percent, JPMorgan Chase & Co.'s profit slid 50 percent, and Citigroup Inc. posted a loss of $5.1 billion.
Bank of America's chief executive, Ken Lewis, said in a statement that the first-quarter results ''clearly did not meet our expectations.''
He added: ''The weakness in the economy and prolonged disruptions in the capital markets took their toll.''
Results included $1.31 billion of trading losses compared with income of $1.66 billion a year earlier. This was driven primarily by $1.47 billion in write-downs of collateralized debt obligations, a security often backed by subprime mortgage loans, and $439 million for loans to fund leveraged buyouts. Trading losses were $5.15 billion in the fourth quarter of 2007.
Bank of America said the $3.3 billion increase in reserves was part of a $4.78 billion increase in provisions, to $6.01 billion, ''due to rising credit costs — particularly in the home equity, small business and homebuilder portfolios.''
Net charge-offs, loans it doesn't think are collectable, jumped to $2.72 billion, up from $1.43 billion a year ago, reflecting housing market deterioration and slowing economic conditions, the company said.
Bank of America said it ''remains concerned'' about the health of the consumer.
In the bank's consumer unit, which includes the nation's biggest credit card business and retail branch network, revenue rose 17 percent, while earnings dropped 59 percent due to increased credit costs.
Investment-banking profit plunged 92 percent on the write-downs as revenue fell 41 percent.
Results also included a $776 million gain from credit card network Visa Inc.'s initial public offering last month.
source: 21apr2008
Bank of America Corp. posted a 77% drop in net income Monday, as provisions for credit losses quintupled to $6 billion and investment banking write-downs cost at least another $1.91 billion.
The big increase in credit costs was driven by weakness in home equity loans and credit extended to small businesses and home builders, Bank of America said. The results from the largest U.S. retail bank underscore the growing pressure on U.S. consumers as the housing slump deepens and economic growth slows — pressure that is doing increased damage to banks' profit reports.
"We remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices," Chief Executive Kenneth D. Lewis said in a release.
The bank expects "minimal at best" GDP growth in the second quarter and only a "slight pickup" in the second half of the year.
The bank, set to acquire troubled subprime-mortgage lender Countrywide Financial Corp. in the third quarter, reported net income of $1.21 billion, or 23 cents a share, down from $5.26 billion, or $1.16 a share. Net revenue fell 6.3% to $17 billion.
Analysts polled by Thomson Financial expected earnings of 41 cents a share on $16.46 billion in revenue.
"Despite revenue growth in most of our businesses, these results clearly did not meet our expectations," Mr. Lewis said in the release, adding that "weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance."
The bank booked more hits related to the credit crisis, including write-downs of $1.47 billion on complicated securities called collateralized-debt obligations and $439 million on high-risk loans like those used to fund leveraged buyouts.
But the real damage was done outside the capital markets. Bank of America's provision for credit losses soared to $6.01 billion from $1.24 billion amid rising credit costs in the home-equity, small-business and home-builder portfolios. The figure was sharply higher than the $3.31 billion provisions in the fourth quarter.
Net charge-offs for loans the bank doesn't think are collectable jumped to 1.25% from 0.81% of total average loans and leases, reflecting deterioration in the housing market and a slowing economy. Nonperforming assets surged to 0.90% from 0.29%.
Revenue at the bank's consumer unit, which includes the nation's largest credit-card business and bank-branch network, climbed 17%, though earnings dropped 59% on the increased credit costs.
The weakening consumer also hurt Bank of America competitor Citigroup Inc., which itself reported $6 billion in first-quarter credit costs on Friday.
Another Wall Street bank, J.P. Morgan Chase & Co., reported Wednesday that it had set aside loan-loss provisions of $4.4 billion for its consumer loans, a nearly threefold increase from the $1.5 billion it set aside a year ago. Some analysts expect costs from rising consumer defaults to take over from capital-markets losses as the big source of banks' pain.
Bank of America's investment-banking profits plunged 92% on the write-downs, as revenue fell 41%.
Mr. Lewis said in January that Bank of America will be profitable this year and continue its 30-year history of increasing its stock dividends. He projected at the time that the bank's earnings would top $4 a share this year, with most of the growth coming in the second half of the year.
source: 21apr2008
Bank of America Corp., one of the nation's largest student lenders, said it will stop making private student loans and will prepare to do more lending under a federally guaranteed program. The announcement came as the U.S. House of Representatives passed legislation that would strengthen protections for the government loan program.
The move by Bank of America, based in Charlotte, N.C., heightens concerns that some students will have difficulty landing private loans to help pay for college this fall. But it provides a lift for the Federal Family Education Loan, or FFEL, program, which accounts for about four out of five college loans.
In recent months, more than 50 lenders have announced they will stop making FFEL loans, saying they are no longer profitable because of subsidy cuts and the difficulty of raising lending capital with securities backed by such loans. Earlier this week, SLM Corp., known as Sallie Mae, the largest student lender , reported a first-quarter loss and warned that it couldn't make profitable loans at this time.
Bank of America, the third-largest lender in the FFEL program, said federally guaranteed loans accounted for about 75% of the $4.4 billion in student loans it made last year.
Sandra Dunleavy, head of the bank's student loan business, said it "remains committed to helping parents and students" through FFEL, which provided 7.5 million students and parents with $91.8 billion in federally guaranteed loans in the current school year, according to government estimates.
Bank of America's withdrawal from private student lending was a blow to Boston-based First Marblehead Corp., which acquired private loans from Bank of America and other lenders, then bundled them into trusts that issued notes to investors. Fees from Bank of America accounted for 15% of First Marblehead's revenue in fiscal 2007.
First Marblehead said Thursday that the bank terminated its agreements with the company because of the recent bankruptcy filing of Education Resources Inc., which insured loans against default for First Marblehead. First Marblehead's shares fell 17%, or 68 cents, to $3.37 in 4 p.m. composite trading on the New York Stock Exchange.
Meanwhile, the House took action Thursday to provide a backstop to the FFEL program. Rep. George Miller (D., Calif.) co-sponsored the Ensuring Continued Access to Student Loans Act with the education panel's ranking Republican, Rep. Howard McKeon, also of California.
Approved by a strong bipartisan majority of 382-27, the bill lays out emergency measures that could be implemented if there's evidence the student-loan market is seizing up.
It clarifies that the federal government has the ability to designate, and even provide capital to lenders as a last resort if students are unable to get loans otherwise. It would provide for up to 35 government-sponsored guaranty agencies to begin lending to students as an interim measure. Under existing law, the government has this authority, but it has never been invoked.
Under the legislation, the Secretary of Education could purchase student loans from private lenders on an interim basis to provide emergency liquidity to markets.
The White House indicated on Wednesday that it supported key provisions of the bill and was willing to work with Congress to craft a law that both branches of government could get behind. Sen. Edward Kennedy (D., Mass.) has introduced legislation in the Senate similar to that approved by the House.
source: p.C2 21apr2008
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