Bank of America posts first loss in 17 years
Bank of America Corp, 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, and Chief Executive Kenneth Lewis said net losses may be at or above the fourth-quarter level for several quarters.
“It is difficult to focus on what is going right at this time,” a clearly downbeat Lewis said on a conference call.
But, he added, the “severe” recession and credit crisis “will end some day, and people will remember that our company was there for them in hard times.”
Hours after it won $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.
Lewis said the government worried that scuttling the merger could create “serious systemic harm payday loans.” He said the Federal Reserve and Treasury Department gave assurances that they would provide necessary help if the merger closed.
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.
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.
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