BofA earnings tumble, cuts div; to raise $10 bln
Christian PlumbNEW YORK (Reuters) - Bank of America Corp ,citing "recessionary conditions," Monday halved its dividendand said it would sell at least $10 billion in new common stockto bolster its capital to offset rising loan losses.
The largest U.S. bank, which has worried some investorsover the past year with big ticket takeovers of mortgage lenderCountrywide Financial Corp and investment bank Merrill Lynch &Co Inc, also said quarterly earnings slid asteeper-than-expected 68 percent.
Bank of America, whose shares were down nearly 9 percent inextended trading after the surprise announcement, had been seenas one of the industry's pillars of strength but the resultsand accompanying moves to bolster its capital, showed that ittoo, is struggling with the credit crisis.
"These are the most difficult times for financialinstitutions that I have experienced in my 39 years inbanking," said Kenneth Lewis, its chairman and chief executiveofficer, in a statement.
Bank of America warned that credit quality continued toweaken during the quarter, and Lewis said he expected highercredit losses and depressed earnings ahead.
Third-quarter net income dropped to $1.18 billion, or 15cents a share, from $3.70 billion, or 82 cents a share, a yearago.
"It was a perfect storm kind of quarter," he said in aconference call with analysts.
Analysts looked for earnings per share of 60 cents,excluding one-time items, according to Reuters Estimates. Itwas not clear whether the estimate was comparable to thequarterly figure which was reported on a net basis.
The weaker earnings were driven by higher credit costsresulting largely from two of its most recent acquisitions --Countrywide Financial Corp, which had been the country'slargest independent mortgage lender, and Chicago-based LaSalleBank.
"I'm sure it's a surprise. It's another tile in the mosaic.Things are not good with financial companies. This reflects it.This has to be a disappointment," said Lou Brien, marketstrategist at DRW Trading in Chicago.
Charlotte, North Carolina-based Bank of America said it wascutting its quarterly payout to 32 cents a share from 64 cents,which will add more than $1.4 billion in capital per quarter.
In addition, it aims to sell $10 billion in new commonstock and could sell more based on demand, the bank'sexecutives said on a conference call.
"I don't think anything is easy in this market, but theyare perceived as one of the stronger franchises, and I thinkthey will have a somewhat easier time than others (raisingcapital)," said Rick Meckler, chief investment officer ofLibertyView Capital Management in New York.
So far this year, Bank of America shares have fallen 22percent, outperforming the KBW Banks index , which hasdeclined 28 percent over the same period.
WEAKENING CREDIT
Bank of America said its consumer credit card business sawa decrease in purchase volumes, slowing repayments andincreased delinquencies during the quarter.
On a conference call with analysts and investors, Lewissaid credit quality would continue to be an issue over the nextseveral quarters.
He insisted the bank's long-term prospects were strong asweaker rivals like, Washington Mutual Inc and WachoviaCorp are forced to sell at distressed prices.
"On the other side of this, you've got a powerhouse," Lewissaid.
The bank said it was benefiting from a "flight to quality,"with retail deposits up $56 billion from the previous quarterto $586 billion. That included the addition of $35 billion fromCountrywide.
Revenue from its capital markets and advisory services washit hard by charges related to collateralized debt obligations(CDOs), which totaled $952 million, while write-downs onleveraged loans and commercial mortgages totaled $327 million.CDOs are securities backed by a pool of bonds, loans or otherassets.
Equity investment income was hit by $320 million inwrite-downs on preferred stock of Fannie Mae andFreddie Mac .
"We are in a very, very tough time for financial servicescompanies, and Bank of America is not immune," said ThomasRusso, partner at Gardner Russo & Gardner, which manages morethan $3 billion.
"You see weakness across all asset categories. The ironyis, commercial banks are considered to be safe havens forinvestment banks. That's the world we live in."
Lewis said he believed it was important for Bank of Americato be at or near its 8 percent Tier 1 capital ratio target,given the recessionary conditions and outlook for still weakereconomic performance. Tier 1 is a measure of a bank's capitalstrength.
Lewis said on the conference call the recent events hadbeen "breathtaking." He said it would take time before anyincreased liquidity from the just-passed $700 billion U.S.financial bailout is seen.
Bank of America shares were down nearly 9 percent at $29.40in after-hours trading, from the close of $32.22. (Additional reporting by Megan Davies, Elinor Comlay, DanWilchins and Richard Leong; editing by Bernard Orr and JeffreyBenkoe)