Thursday, October 18, 2007
BANC AMERICA PROFIT FALLS
By Jonathan Stempel
NEW YORK (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research), the No. 2 U.S. bank, posted a much larger-than-expected 32 percent drop in quarterly profit on Thursday, hurt by mounting credit losses and dismal investment banking results.
Third-quarter net income fell to $3.7 billion, or 82 cents per share, from $5.42 billion, or $1.18, a year earlier.
Excluding items, profit was 84 cents per share, according to Reuters Estimates. Analysts expected $1.06. Losses from bad loans, trading and write-downs exceeded $3.7 billion. Profit from consumer banking, its largest business, fell 16 percent.
"We should have done better," Chief Executive Kenneth Lewis said on a conference call.
The decline was the latest in a series of disappointing bank results and dampened confidence about the health of U.S. consumers and the economy. Bond prices rose, and the dollar set a record low against the euro. Expectations rose that the Federal Reserve would cut interest rates this month.
"We knew the credit situation was going to be bad, but this was worse than expected," said Michael Mullaney, who helps invest $10 billion at Fiduciary Trust Co in Boston.
"What causes us concern is the increase in reserves doesn't appear aggressive, and the bank may need to reserve more in the future, which hits earnings," he added. "The real surprise was investment banking, where revenue plunged."
Shares of Bank of America closed down $1.18, or 2.4 percent, at $48.85 on the New York Stock Exchange. The 24-member Philadelphia KBW Bank Index (.BKX: Quote, Profile, Research) fell 1 percent.
"HORRIBLE" TRADING RESULTS
Corporate and investment banking profit tumbled 93 percent to $100 million from $1.43 billion as revenue sank 44 percent.
Results were hurt by a $247 million write-down for leveraged and other loans, and a $527 million loss from structured products, including mortgages.
The overall trading loss was $1.46 billion, which Goldman Sachs & Co analyst Lori Appelbaum termed "horrible." Trading profit was $731 million a year earlier.
"What I can't say is that we stay the course," Lewis said. "I've had all of the fun I can stand in investment banking at the moment." He called the probability of changes in and elimination of some businesses and infrastructure "very high."
The corporate and investment bank employs more than 20,000 people, the bank said.
In an interview, Chief Financial Officer Joe Price declined to discuss possible staff cuts. He said any changes in the unit would likely be set by January.
While parts of the capital markets have improved, he said some structured credit markets may take longer to recover, and may by then "look different and hence not be as robust."
Results at Southeast banks SunTrust Banks Inc (STI.N: Quote, Profile, Research) and BB&T Corp (BBT.N: Quote, Profile, Research) also missed forecasts. Washington Mutual Inc (WM.N: Quote, Profile, Research), the largest thrift, said on Wednesday quarterly profit fell 72 percent and nearly doubled its 2007 loan loss forecast.
Bank of America joined rivals Citigroup Inc (C.N: Quote, Profile, Research), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and other banks in reporting losses related to leveraged loans, mortgages, consumer credit, or a combination.
Quarterly profit fell 57 percent to $2.38 billion at Citigroup, and rose 2 percent to $3.37 billion at JPMorgan. Return on equity was 11.02 percent at Bank of America, 7.4 percent at Citigroup and 11 percent at JPMorgan.
Bank of America's results were a surprise given that its investment bank is smaller than Citigroup's and JPMorgan's. It is also not in risky markets such as subprime mortgage lending.
Still, the bank generates more of its business in the United States, exposing it more to weakening economic conditions at home, such as in housing.
Bank of America set aside $2.03 billion for credit losses, up more than 73 percent. Net charge-offs rose 23 percent to $1.57 billion. Nonperforming assets doubled to $3.37 billion.
CONSUMER PROFIT FALLS
Revenue fell 12 percent to $15.93 billion, the bank said. Analysts on average had expected $18.01 billion.
Profit from consumer and small-business banking fell to $2.45 billion from $2.92 billion. Net interest margin fell to 2.61 percent from 2.73 percent a year earlier. It rose from the second quarter's 2.59 percent.
Consumer and business banking profit may rise following the bank's $21 billion purchase on October 1 of ABN AMRO Holding NV's (AAH.AS: Quote, Profile, Research) LaSalle Bank.
Wealth and investment management profit rose 17 percent to $599 million, helped by the $3.3 billion purchase of Charles Schwab Corp's (SCHW.O: Quote, Profile, Research) US Trust private banking business.
Lewis said the bank will in the fourth quarter mark to market its initial $3 billion investment in China Construction Bank (601939.SS: Quote, Profile, Research), which was worth about $18 billion on September 30, increasing Bank of America's book value.
The bank ended the quarter with $1.58 trillion of assets.
(Additional reporting by Ellis Mnyandu, Dan Wilchins and Lilla Zuill in New York)
© Reuters2007All rights reserved
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