Largest ACORN Victim Bank Of America Loses $2.4 Billion In Three Months

Oct 16, 2009 1 Comment ›› Pat Dollard

New York Times:

Bank of America reported a third-quarter loss on Friday, releasing results that showed a bank burdened by mortgage defaults and credit card delinquencies.

The bank, which had big profits in the previous two quarters, reported a loss of $1 billion in the third quarter before accounting for dividends to preferred shareholders, in particular the federal government. When those dividend payments are included, the loss was $2.24 billion.

Some of the red on the bank’s balance sheets actually reflected an improvement in its financial condition after the depths of last year.

The bank took $2.6 billion in write-downs from improvements in the company’s credit spreads, which have narrowed as markets stabilized. And it spent more than $400 million to end a dispute with the government over an agreement to insure its most toxic assets so the bank could complete its acquisition of Merrill Lynch.

In a conference call to discuss the bank’s performance, its chief executive, Kenneth D. Lewis, struck an elegiac note. Mr. Lewis, under fire for the bank’s performance and the Merrill deal, is stepping down at the end of the year.

“I just wanted to say thank you for the ups you’ve shown me during my time with you and the support you’ve shown the company,” Mr. Lewis said. “It’s been a pleasure to lead Bank of America and interact with all of you. I have no doubt that Bank of America will thrive and my absence will not slow the momentum that is starting once again to move forward.”

The loss of 26 cents a share for the three months from July through September compared with a profit of $3.2 billion, or 33 cents, in the second quarter. Wall Street analysts had been expecting a loss of 12 cents a share. The bank earned $1.18 billion, or 15 cents a share, in the quarter a year ago.

Loans at least 30 days overdue are still growing, the bank said in a federal filing earlier this week. Aside from its roster of troubled consumer credit and loan products tied to the sagging mortgage market, Bank of America is beset with problems that run from Washington to civil courtrooms to its own boardroom.

Its earnings put Bank of America squarely in the shadow of banks like Goldman Sachs and JPMorgan Chase, which each posted strong profits this week that beat expectations. Citigroup, which is still tethered to government bailouts, reported a loss to shareholders of $3.2 billion on Thursday.

The losses at Bank of America, with its big consumer-lending and mortgage business, reflect the troubles still roiling the broader economy.

In the third quarter, Bank of America added $2.1 billion to its reserves to cover more credit losses as unemployment surges and households struggle to keep up on their loans. Its net charge-offs grew to $9.6 billion as people defaulted on their credit cards.

Over all, the bank’s revenue grew by $26.4 billion, a 33 percent increase from $19.9 billion a year ago. The bank collected more retail deposits and made money on its investment business, but its finances were pummeled by losses on its businesses connected to home loans and consumer credit.

Now, as the recession gradually fades, questions loom about who can pull Bank of America back to higher ground. With Mr. Lewis’s departure, the bank must searches for a successor who can restore the bank’s tarnished image and remove the government crutches holding it up.

On Friday, Mr. Lewis declined to say when his replacement would be chosen, but said, “I can just say that there’s an appropriate sense of urgency but combined with wanting to obviously make the best decision.”

Bank of America has accepted some $45 billion in taxpayer bailouts since the financial crisis erupted last year, and has issued debts backed up by the government. While rivals like Citigroup and Wells Fargo also remain on government support, stronger competitors like Goldman Sachs and JPMorgan Chase have already paid back their bailouts, freeing themselves of the scrutiny and stigma that came with taking the bailout.

A day before reporting its earnings, the bank tried to quell some of the furor over its management and bonus structure by announcing that Mr. Lewis promised to return the pay he received this year to avoid a confrontation with Kenneth R. Feinberg, the Obama administration’s overseer of executive compensation.

While Merrill’s brokerage business may be adding meat to Bank of America’s bottom line, investigations over the deal that folded the thundering herd into Bank of America still pose legal tangles and publicity headaches for the bank. Regulators, members of Congress and shareholder lawsuits are examining the merger and questions over bonuses paid out to Merrill executives on the eve of the deal.

For Mr. Lewis, Friday marked the last time he would hold court on a quarterly earnings conference call as chief executive, engaging in the ritual back-and-forth with analysts. In the last question of that last call, Mr. Lewis was asked whether he had any lessons learned from the last year, or the last 20.

“Oh, no,” he said. “I sit here at the moment thinking that we have built the best financial franchise in the world and that I look forward — it’ll be from afar, I guess — but I look forward to seeing it play out.”