April 21 (Bloomberg) -- Bank of America Corp., the second- largest U.S. bank, said profit dropped for a third straight quarter as the company set aside $6.01 billion for bad loans.
First-quarter net income declined 77 percent to $1.21 billion from $5.26 billion a year earlier, the Charlotte, North Carolina-based bank said today in a statement. Results included $1.31 billion in trading losses and $2.72 billion in costs for uncollectible loans. Earnings per share shrank to 23 cents from $1.16, falling short of analysts' estimates and sending the bank's stock down as much as 2.6 percent in New York trading.
The slide casts doubt on Chief Executive Officer Kenneth Lewis's goal to increase profit by at least 20 percent this year. The bank's consumer unit, which contributed more than 60 percent of operating income in 2007, faces a nationwide jump in unpaid debt and the highest unemployment rate since 2005. Overdue U.S. credit-card bills are the most in more than three years and foreclosures soared 57 percent in March.
``It's quite a bit below expectations,'' Walter ``Bucky'' Hellwig, senior vice president of Morgan Asset Management in Birmingham, Alabama, said today in a Bloomberg TV interview about the earnings report. ``They are paddling upstream with regards to credit losses and credit quality.'' Morgan Asset, a unit of Regions Financial Corp., manages $30 billion.
Revenue fell 6 percent to $17.3 billion. Profit decreased 59 percent to $1.09 billion in the consumer and small business unit, and dropped 92 percent to $115 million at the corporate and investment bank. The bank said home equity, homebuilder and small business loans were ``particularly'' affected by the slowing economy.
Weaker Economy
``These results clearly did not meet our expectations,'' Lewis said in the statement. ``The weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance.''
Citigroup Inc., the biggest U.S. bank by assets, reported a first-quarter loss last week of $5.1 billion, smaller than analysts' most pessimistic estimates. JPMorgan Chase & Co., ranked third, said earnings declined 50 percent. Both are based in New York. Wachovia Corp., ranked fourth and based in Charlotte, posted an unexpected loss of $393 million.
Bank of America fell 73 cents to $37.83 a share in 10:10 a.m. New York Stock Exchange composite trading. The stock slid 8.1 percent in the first quarter, compared with JPMorgan's 1.6 percent drop and Citigroup's 27 percent decline. The 24-member KBW Bank Index dropped 11 percent. Bank of America supplanted Citigroup last year as the largest U.S. bank by market value, and issued more credit cards than any domestic competitor.
Countrywide Purchase
Bank of America's Tier 1 capital ratio -- a benchmark regulators use to monitor a lender's ability to withstand loan losses -- rose to 7.51 percent at the end of the quarter from 6.87 percent at the end of 2007. The minimum for a ``well- capitalized'' rating from U.S. regulators is 6 percent.
The net interest margin, the difference between interest paid on deposits and received from loans, widened to 2.73 percent from 2.61 percent on Dec. 31.
Bank of America will move deeper into the mortgage business when it acquires Calabasas, California-based Countrywide Financial Corp., the biggest U.S. home lender.
The stock-swap transaction, originally valued at about $4 billion and scheduled to be completed in the third quarter, gives Bank of America a role in one out of every four home loans in the nation. Countrywide, with losses of $1.6 billion over the past two quarters, is scheduled to report quarterly results on April 29.
Visa's IPO
Earnings included a $776 million pretax gain linked to the sale of shares in Visa Inc., the world's biggest credit-card network and $170 million of restructuring costs. San Francisco- based Visa set a record for U.S. initial public offerings last month by raising more than $19 billion, and the stock has since gained 57 percent. Bank of America ranked as Visa's second- largest bank owner after JPMorgan.
The world's biggest banks and brokerages have disclosed $288 billion of writedowns and credit losses since June because of collapsing prices in U.S. mortgage markets. They've raised more than $160 billion to replenish capital, with Bank of America tapping public investors for at least $13 billion after writedowns and credit losses that totaled at least $8.2 billion before today, according to data compiled by Bloomberg.
Potential Costs
Late payments in the bank's $81 billion credit-card portfolio may have reached 5.8 percent as of Feb. 29, compared with an industry average of 4.1 percent, according to data compiled by Bloomberg on securitized loans.
``We remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices,'' Lewis said.
Assuming 2 percent of the bank's home-equity loans are uncollectible this year, the cost may be $2.3 billion, Fitch Ratings analyst John Mackerey said in a March 14 report. If the bad loans reach 5 percent, the damage could total $5.9 billion, he said.
About half of Bank of America's home-equity loans are in California, Nevada, Arizona and Florida, four states where housing prices are sliding faster than the national average.
Countrywide, with $34 billion in home-equity loans as of Dec. 31, also concentrated on those regions. All four ranked among the top 10 states with the most foreclosure filings last month, according to Irvine, California-based RealtyTrac Inc., a seller of default data. U.S. median home prices as of February were 15 percent below the peak of $230,200 in July 2006, according to the Chicago-based National Association of Realtors.
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