Bank of America posts first loss in 17 years
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NEW YORK (Reuters) - Bank of America Corp
(NYSE:BAC<http://finance.yahoo.com/q?s=bac>-
News<http://us.lrd.yahoo.com/_ylt=ArQgvy_jHEmvcNAflLMk5CtQ5D0D/SIG=119q7hmj4/**http%3A//finance.yahoo.com/q/h%3Fs=bac>),
posted its first quarterly loss in 17 years on Friday and slashed its
dividend, hours after winning a multibillion-dollar lifeline from the U.S.
government to help absorb Merrill Lynch, which lost a record $15.31 billion
in the quarter.
The dismal results came as the largest U.S. bank faced mounting pressure
from investors who questioned how well it will absorb a tidal wave of soured
loans in an economy showing no signs of escaping a deep recession. Bank of
America cut its quarterly dividend to a penny from 32 cents.
"It is difficult to focus on what is going right at this time," a clearly
downbeat Chief Executive Kenneth Lewis said on a conference call. "The
economy and subsequently the credit markets literally hit a wall starting in
September and culminating late in December, with the greatest impact of my
almost 40 years in banking."
Shares of Bank of America fell 7 cents to $8.25 in morning trading.
Hours after it obtained $20 billion in new capital from the government's
$700 billion Troubled Asset Relief Program (TARP), the bank reported a
quarterly loss of $1.79 billion, or 48 cents per share, compared with a
year-earlier profit of $268 million, or 5 cents.
Lewis sought government help after it became clear that Merrill's credit
losses were far higher than expected, and had threatened last month to scrap
the $19.4 billion takeover without government help.
He said the government worried that scuttling the merger could create
"serious systemic harm," but that the Federal Reserve and Treasury
Department gave assurances that they would provide necessary help if the
merger closed.
Lewis added that the "severe" recession and credit crisis "will end some
day, and people will remember that our company was there for them in hard
times."
Bank of America's purchase of Merrill Lynch and its July acquisition of
Countrywide Financial Corp gave the bank significant exposure to several
major areas of the financial system, just as the economy's decline was
accelerating.
"They were probably one of the best banks out there, balance sheet-wise,
until they did the Merrill deal," said Cassandra Toroian, chief investment
officer at Bell Rock Capital in Paoli, Pennsylvania, which owns the bank's
shares.
Through Thursday, the stock has fallen more than 81 percent from its 52-week
high last February.
CREDIT LOSSES SKYROCKET
Excluding merger costs, the loss was 44 cents per share. Net revenue rose 22
percent to $15.68 billion.
Analysts, on average, expected profit of 2 cents per share, according to
Reuters Estimates.
The bank set aside $8.54 billion for bad loans, up from $6.45 billion in the
third quarter and $3.31 billion a year earlier. Net charge-offs nearly
tripled from a year earlier to $5.54 billion, or 2.36 percent of average
loans and leases.
At Merrill, the loss was $9.62 per share, driven by significant writedowns.
Bank of America said it expects the purchase to reduce earnings per share
for two years, and still expects $7 billion of cost savings.
With the latest capital infusion, Bank of America has taken $45 billion in
TARP money, the same amount as Citigroup Inc
(NYSE:C<http://finance.yahoo.com/q?s=c>-
News<http://us.lrd.yahoo.com/_ylt=AoM6A_BpSmT5LuSJpwbB_kZQ5D0D/SIG=117r2hvqj/**http%3A//finance.yahoo.com/q/h%3Fs=c>),
which won its own rescue package in November.
Citigroup also reported fourth-quarter results on Friday, posting a $8.29
billion loss, and said it plans to separate into two units after its own
massive credit losses.
GOVERNMENT SHARES IN LOSSES
The rescue package for Bank of America calls for the government to share in
losses on $118 billion in residential and commercial mortgages, derivatives
and corporate debt. The bank will absorb the first $10 billion of losses,
the government the next $10 billion, and the government 90 percent of the
rest.
Lewis said the rescue package will help it operate as normally as possible.
The bank said it had extended more than $115 billion in new loans in the
quarter and was adding mortgage staff to accommodate more refinancings.
"This company will generate huge amounts of profit" when the economy returns
to normal, Lewis said.
Bank of America is also struggling with defections of top Merrill
executives, including brokerage chief Robert McCann and Greg Fleming, who
was expected to run the combined investment bank.
Lewis said he is "happy" that former Merrill Chief Executive John Thain is
taking a major role at the bank as head of global banking, securities and
wealth management.
Bank of America has said it expects to cut 30,000 to 35,000 jobs over three
years following the Merrill merger, on top of 7,500 job losses following the
Countrywide acquisition.
(Reporting by Jonathan Stempel and Elinor Comlay; editing by Lisa Von Ahn
and Jeffrey Benkoe)
http://finance.yahoo.com/news/Bank-of-America-posts-first-rb-14082686.html
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