Bank of America profits plunge 68%

Banking giant reports - more than a week in advance - worse-than-expected earnings. Dividend halved and $10B stock sale announced.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By David Ellis, staff writer

What is your current investment strategy?
  • Looking for safety
  • Holding steady
  • Buying stocks

NEW YORK ( -- Bank of America proved it was not invulnerable to the credit crunch as it reported a steep decline in earnings on Monday, and announced plans to bulk up on capital by slashing its dividend in half and raising $10 billion through a stock sale.

Making the surprise announcement just after the closing bell, the Charlotte, N.C.-based bank said its third-quarter net income fell to $1.18 billion, or 15 cents a share, down 68% from $3.7 billion, or 82 cents a share, a year ago.

That was far worse than Wall Street's consensus forecasts of a net profit of $3.22 billion, or 62 cents a share.

Bank of America (BAC, Fortune 500) shares, which fell 6.5% during the session Monday, tumbled more than 9% in after-hours trading on the news.

Fresh off its recent acquisition of Merrill Lynch, Bank of America also said it planned to raise $10 billion in capital through a common stock sale and that it will cut its dividend to 32 cents from 64 cents in recent quarters.

Kenneth Lewis, Bank of America's chairman and chief executive officer, told investors in a conference call the move would help insulate the company in the current market environment, which has been marked by the disappearance of several major financial institutions in recent weeks.

"We thought it was prudent," Lewis said.

In addition to Bank of America's purchase of Merrill Lynch, Lehman Brothers has filed for bankruptcy, JPMorgan Chase (JPM, Fortune 500) acquired failed savings and loan Washington Mutual and Wachovia (WB, Fortune 500) is in the process of being bought by either Citigroup (C, Fortune 500) or Wells Fargo (WFC, Fortune 500). Those two banks are battling in court over the rights to buy Wachovia.

Lewis reserved some of the blame for the dismal quarterly results for higher credit costs in such areas as its mortgage and credit businesses as more consumers found it difficult to repay their loans.

All told, Bank of America said it set aside $6.45 billion for credit-related losses, more than triple during the same period just a year ago.

Exacerbating that pain was a charge related to buying back auction-rate securities from clients, a $320 million hit from the company's ownership of preferred stock of Fannie Mae and Freddie Mac and more than $1.2 billion in writedowns related to mortgage-backed securities and leveraged loans.

Bank of America execs said they experienced some encouraging trends including new client relationships and a flood of new deposits as both consumers and commercial account holders looked for a safe haven to park their cash. Over the past 3 months, the company gained $21 billion in new deposits - almost three times the industry average.

But those highlights were tempered by a dour outlook. Lewis, who has served as CEO since 2001, warned that he expected loan losses to peak towards the latter end of 2009 and that the company would have to continue to set aside money for bad loans through the coming year.

As a result, Lewis acknowledged that consumers may find little relief in the months ahead when it comes to securing credit.

"That is going to continue for some period of time," he said.

The results, which was originally slated to be released on Oct. 20, come just as the company announced a massive $8.4 billion foreclosure prevention effort.

As part of a legal settlement with 11 state attorneys general who had sued the troubled mortgage lender Countrywide Financial, Bank of America said it would cut monthly housing payments, a move that is expected to keep as many as 400,000 borrowers across the country.

In January, Bank of America announced plans to acquire Countrywide and completed its purchase in June. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.