First Wells Fargo; Now Bank of America Posts Profits

CHARLOTTE, N.C. (AP) — Bank of America Corp. warned of worsening loan default problems Monday even as it posted a first-quarter profit of $2.81 billion. Investors concerned about the banking industry’s health sent financial stocks and the overall market sharply lower.

Although Bank of America said higher revenue from the purchase of Merrill Lynch & Co. helped offset a surge in credit costs, it took a hefty $13.4 billion provision for credit losses during the first three months of the year.

The bank’s stock fell $1.80, or 17 percent, to $8.50 in midday trading as the overall stock market slid. Although last week Wall Street was happy with better-than-expected results from JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc., banking companies generally benefited during the quarter from unusually strong bond trading, a trend not expected to continue while loan problems persist.

Charlotte, N.C.-based Bank of America reported a similar performance during the first quarter.

“Like it or not, capital markets is now a core business for Bank of America, and that has more volatile returns than other businesses,” said Celent banking analyst Bart Narter. “Bank of America is no longer exclusively a retail bank and there can be more fluctuations.”

Bank of America earned $2.81 billion after paying preferred dividends, or 44 cents per share, compared with a profit of $1.02 billion, 23 cents per share, in the year ago period. Analysts surveyed by Thomson Reuters expected profit of 4 cents per share.

Troubled loans, or nonperforming assets, increased to $25.7 billion from $7.8 billion a year ago. The bank also lost $1.8 billion on card services, after posting a profit a year ago.

“Credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve,” Chief Executive Ken Lewis said during a conference call with analysts, noting that the bank continues to face challenges. “Whether that turn is later this year or in the first half of 2010, I’m not going to hazard a guess.”

Lewis has been under intense pressure this year over the Merrill purchase, which closed Jan. 1. Shareholders approved the deal before learning of big losses at the New York-based investment and reports surfaced that Merrill Chief Executive John Thain rushed out billions of dollars in bonuses to Merrill employees in his final days as CEO even as Bank of America was begging the government for aid to complete the deal.

The first quarter results include revenue from the company’s acquisitions of Merrill and Countrywide Financial Corp., which Bank of America did not own last year.

During the quarter, revenue more than doubled to $35.76 billion, mainly from the addition of Merrill. It was also helped by a $1.9 billion pre-tax gain from selling shares it owned in China Construction Bank. Bank of America continues to own about 17 percent of the common shares of the Chinese bank, it said. Analysts expected revenue of $27.13 billion.

However, Bank of America recorded a $13.4 billion provision for credit losses in the first quarter, showing that it is not immune from deteriorating credit quality and growing unemployment. The bank set aside $6.4 billion as additional reserves to cover future losses.

Bank of America has received $45 billion in government funds as part of the Treasury Department’s $700 billion financial rescue package.

2 thoughts on “First Wells Fargo; Now Bank of America Posts Profits

  1. Why is Bank of America paying dividends to stockholders when it has received $45 billion in government funds as part of the “financial rescue package”? If the taxpayers are invested in Bank of America to the tune of $45 billion, did the taxpayers get a “preferred stock dividend” payment?

    Kathryn Simpson

  2. The Bank of America will likely close their doors if they treat other customers as they treated me the other day.

    The following is relevant as a decided change in attitude of the business. That has to mean something.

    There is no way to tell this story without admitting that I am sometimes late paying a bill. Yes, I am late sometimes and have been for years. Nothing new. I also pay bills in full.

    That said, I charged $50. on my card the other day and it came back bank refused.
    I called Bank of America right away and was told it was refused because I was late. (due 27th, I cut the check on the 29th and talked with him the 30th).

    I have never ‘maxed’ my card and the balance was only pennies compared to what my balance ‘could’ have been…nothing different than it has been for a decade.

    More importantly the Bank of America spokesperson, male, was rude and unpleasant. He reinforced my original annoyance that Bank of America had bought out the bank I started with.

    The U.S.E.T. Foundation, Inc. should switch to another bank…a bank who WANTS their customers!

    It is my opinion B of A isn’t interested in keeping their customers…because I can’t be the only one so rudely treated.
    As I see it… Sharon O’Hara

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