Bank of America CEO Says Rebound May Beat Forecasts
Bank of America Corp. Chief Executive Officer Kenneth Lewis told investors in Japan his “optimistic side is coming back” and the U.S. economy may rebound more rapidly than expected.
“There is a potential for a rebound that beats the forecasts,” Lewis said in a speech prepared for a Bank of America Merrill Lynch conference in Tokyo.
Thin inventories, increased personal savings, lower payments on household debt and reduced numbers of unsold homes may be setting up a powerful rebound, Lewis said. Deep recessions often have led to “strong recoveries — and strong job growth in the first year of recovery,” he said in the remarks to be delivered on the anniversary Lehman Brothers Holdings Inc.’s bankruptcy filing last year.
Lewis’s outlook contradicts predictions of a “jobless recovery” from Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Yuji Kameoka, a Tokyo-based strategist at Daiwa Institute of Research Ltd. Deutsche Bank AG, in a report released yesterday, said home prices in the U.S. will fall a further 10.5 percent and reach bottom at the end of next year’s second quarter.
While hard times aren’t over for the financial industry, credit losses will peak in the next few quarters, “and banks always experience their worst losses long after an economic recovery is already under way,” Lewis said.
U.S. Payrolls
U.S. employers cut payrolls by 216,000 in August, the smallest drop in a year, according to a Labor Department report. The 9.7 percent jobless rate is the highest since June 1983. Lewis’s company, the biggest U.S. lender by assets and deposits, is based in Charlotte, North Carolina.
Predictions about a U.S. recovery — by Lewis and others — have been wrong before. Lewis said in June 2007 that U.S. growth was about to accelerate and the housing slump was coming to an end. In March of that year, Federal Reserve Chairman Ben S. Bernanke told Congress that subprime defaults were “likely to be contained.” He changed his assessment later in the year.
Banks face a future of higher costs, reduced profits and lower margins as financial services reform limits risk and promotes more traditional banking, Lewis said in the speech. He cited recent credit-card legislation passed Congress as an example of consumer-friendly regulation that will make credit “more expensive and harder to get.”
Bank’s Expansion
Lewis, 62, faces investor doubts about the bank’s most recent expansion after spending more than $120 billion on acquisitions since becoming CEO in 2001. The company bought home lender Countrywide Financial Corp. in July 2008 and brokerage Merrill Lynch & Co. in January as the financial industry was teetering near collapse.
Bank of America gained 2 cents to $16.99 yesterday in New York Stock Exchange composite trading after U.S. District Judge Jed Rakoff rejected a $33 million settlement with the Securities and Exchange Commission. The accord was tied to a dispute over what the bank told shareholders about Merrill’s losses and bonuses before they voted on the takeover. The case will proceed to a trial in New York federal court unless the bank and regulator reach a new settlement.
Lewis made no mention of Rakoff’s order in his prepared remarks. The bank is prepared to prove it made proper disclosures to shareholders, spokesman Scott Silvestri said.
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