Bank of America Corp posted a $1 billion quarterly loss on Friday as consumer credit woes eclipsed investment banking earnings, underlining why the bank remains on a government respirator. The nation's largest bank received two taxpayer bailouts totalling $45 billion after acquiring broker Merrill Lynch & Co and mortgage lender Countrywide Financial Corp at the height of the financial crisis last year.
It says it wants to start repaying the money but has not yet done so. Bank of America's results further dampened the euphoria kicked off by J.P. Morgan Chase & Co's stellar earnings report on Wednesday and indicated a steep climb ahead for banks before they can declare the worst of the financial crisis is over.
"Investors are getting reminded that we have a ways to go to get through the credit cycle," said John MacDonald, an analyst at Sanford C Bernstein in New York. "There's still much room for improvement." Credit losses on its consumer loans are eating into Bank of America's results as it tries to raise capital.
It suffered $9.6 billion in credit losses in the third quarter, up from $4.4 billion a year earlier. "Bank of America is not going to fail. It's eventually going to turn this around - but it will take time," said Gary Townsend, chief executive of asset manager Hill-Townsend Capital.
In an ironic twist, Merrill's investment banking operations - where massive losses in the 2008 fourth quarter triggered strong criticism of Chief Executive Kenneth Lewis - injected a shot of adrenaline into Bank of America's results. The unit produced $2.2 billion in profits.
Lewis, 62, has said he will retire at the end of the year. He faces multiple investigations into whether he disclosed enough information to shareholders before they approved the Merrill acquisition. "Forty years with the same company and eight years as the CEO is enough," Lewis said on the bank's earnings conference call. A board committee is currently searching for a successor.
Charlotte, North Carolina-based Bank of America reported a net loss of $1 billion, or 26 cents per share, for the third quarter, compared with net income of $1.18 billion, or 15 cents per share, in the same period last year. Analysts on average expected a loss of 21 cents per share, according to Thomson Reuters IBES.
The bank's shares slid as much as 5.7 percent to $17.06 in morning trading before recovering to $17.37 in afternoon trade, down 4 percent. The shares are off more than 20 percent over the past 12 months. The bank set aside $11.7 billion during the third quarter for credit losses, $1.7 billion less than in the second quarter but $5.3 billion more than in the third quarter of 2008.