Bank of America net down 77% on credit losses
NEW YORK — Bank of America Corp., the largest U.S. retail bank, today said quarterly profit fell a larger-than-expected 77%, dragged down by more than $5 billion of write-downs and credit-related costs.
Results fell short of analyst forecasts as more consumers and businesses fell behind on debt payments. It followed weak earnings reports at rivals such as Citigroup Inc., JPMorgan Chase & C.o and Wachovia Corp.
“These results clearly did not meet our expectations,” Chief Executive Kenneth Lewis said. “The weakness in the economy and prolonged disruptions in the capital markets took their toll.”
First-quarter net income fell to $1.21 billion, or 23 cents per share, from $5.26 billion, or $1.16, a year earlier. Results included a $776 million gain from credit card network Visa Inc.’s initial public offering last month.
Excluding merger costs, profit was 26 cents per share, well below the average analyst forecast of 45 cents, according to Reuters Estimates.
Net revenue dropped 6% to $17 billion. Analysts expected revenue of $16.33 billion.
Bank of America said it set aside $6.01 billion for credit losses, quintuple the year-earlier level, hurt by credit costs in home equity, small business and homebuilder portfolios.
The Charlotte, North Carolina-based bank still expects to complete its roughly $4.1 billion purchase of Countrywide Financial Corp., the largest U.S. mortgage lender, in the third quarter.
Bank of America added $3.29 billion to its reserves for credit losses. Net charge-offs nearly doubled to $2.72 billion and nonperforming assets nearly quadrupled to $7.83 billion.
Results also included write-downs of $1.47 billion for collateralized debt obligations and $439 million for loans to fund leveraged buyouts. Trading losses declined to $1.31 billion from $5.15 billion from the fourth quarter.
The bank’s Tier-1 capital ratio, a measure of its ability to cover losses, rose to 7.51% from the fourth quarter’s 6.87%, following a sale of $12.9 billion of preferred stock.
Moody’s Investors Service downgraded Bank of America debt to “Aa2,” its third-highest grade, from “Aa1,” citing the bank’s “relatively weak capital position.”
It also assigned a “negative” outlook, citing challenges in integrating Countrywide, “substantial mortgage and home equity exposures in a still weakening market, and CDO exposures that are prone to further marks.”
Lewis said he expects gross domestic product growth in the United States, where it generates much of its business, to be “minimal at best” this quarter, with a slight pickup in the second half of 2008.
Profit in consumer and small business banking fell 59% to $1.09 billion. The corporate and investment bank saw profit fall 92% to $115 million.
In wealth and investment management, profit fell 54% to $228 million, hurt by a $220 million loss to prop up some money funds in its Columbia Management unit.
These results were the second to reflect Bank of America’s $21 billion purchase of ABN AMRO Holding’s LaSalle Bank on Oct. 1.
The U.S. Federal Reserve Tuesday is holding the first of three public hearings concerning Bank of America’s planned purchase of Countrywide. Tuesday’s hearing is in Chicago, and the Fed scheduled hearings for April 28 and 29 in Los Angeles.
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