Bank of America earnings down 44%

Largest retail bank still tops forecasts

From wire reports

July 22, 2008

CHARLOTTE, N.C. - Bank of America Corp. has become the latest in a string of big banks whose second-quarter earnings, while hurting from the impact of the credit crisis, still beat Wall Street expectations.

The country's largest retail bank said yesterday that its second-quarter earnings fell 44 percent as real estate-related losses overwhelmed record revenue across its businesses.

The bank said higher income from higher lending margins and fees from its consumer banking operations along with stronger investment banking results helped it muscle through a challenging economy.

Still, the bank was forced to write off another $709 million related to complex mortgage investments and buyout loans that it was unable to sell.

Four of the nation's five biggest banks have now reported better-than-estimated results. JPMorgan Chase & Co. and Wells Fargo & Co. reported smaller-than-expected profit declines, while Citigroup Inc. had a milder-than-expected $2.5 billion loss.

Wachovia Corp., the nation's fourth-largest bank, is expected to report earnings today. The Charlotte-based bank has said it may post a $2.6 billion to $2.8 billion loss for the quarter.

"Most of our businesses are performing well even with the current state of the economy and the problems with housing," Bank of America chief executive Kenneth D. Lewis said during a conference call with analysts.

"However, as I said, we are not in denial. Credit losses are still going up, but given what we see today, they are manageable," Lewis said.

Bank of America, also based in Charlotte, reported net income of $3.41 billion, or 72 cents per share, on $20.32 billion in revenue, in the April-June period. That compared with net income of $5.76 billion, or $1.28 per share, on $19.63 billion in revenue a year earlier.

Analysts on average expected a profit of 53 cents per share on $18.37 billion in revenue.

Bank of America said credit quality continued to weaken during the quarter, particularly in markets that experienced the most significant home price declines.

The company more than tripled the amount it set aside for bad loans to $5.83 billion, up from $1.81 billion a year ago, largely for consumer and commercial portfolios directly tied to the housing market, including home equity, residential mortgages and homebuilding. The figure surged to $6.01 billion in the first quarter.

During the second quarter, troubled loans in residential mortgage rose to $3.27 billion, nearly four times the amount from a year ago. Home equity loans also continued to rise to $1.85 billion in troubled loans from $496 million a year ago.

Net charge-offs, loans it doesn't think are collectible, jumped to $3.62 billion, up from $1.5 billion a year ago, reflecting housing market deterioration and slowing economic conditions, the company said.

While credit quality in Bank of America's residential mortgage portfolio continues to deteriorate - the charge-off rate more than doubled from the first quarter to the second, from 0.1 percent to 0.24 percent - Sandler O'Neill & Partners LP analyst Jeff Harte said in a client note that it "does not suggest that Bank of America is seeing as rapid a rate of deterioration as indicated by JPMorgan last week."

Elsewhere in its report, Bank of America said write-downs tied to disrupted capital markets totaled $1.22 billion, down from the first quarter's $2.81 billion.

Profit in consumer and small business banking fell 66 percent to $812 million. The corporate and investment bank saw profit rise 3 percent to $1.75 billion. In wealth and investment management, profit fell 1 percent to $573 million.

Bank of America completed its $2.5 billion purchase of Countrywide Financial Corp. July 1, a deal it now says will add to its profits this year. Second-quarter results included $212 million of merger and restructuring costs.