Bank of America said yesterday its profit fell 77% in the first quarter, hurt by trading losses and a $3.3bn (£1.7bn) increase in reserves for problem loans. The Charlotte, North Carolina-based bank, set to acquire troubled sub-prime mortgage lender Countrywide Financial Corp later this year, reported earnings of $1.21bn on $17bn in revenue. That compares with net income of $5.26bn a year earlier on $18.16bn in revenue.
Major national US banks like Bank of America continue to be besieged on two sides: the bread-and-butter banking business is struggling because of the slumping housing market. With home prices flagging, more people and real estate developers are failing to repay their loans.
The credit crisis is also hobbling the value of many bank investments.Last week, crosstown rival Wachovia said it lost $393m in the first quarter because of bad credit and tumultuous financial markets. Washington Mutual Inc lost $1.1bn. Wells Fargo & Co's profit fell 11% and JP Morgan Chase & Co's profit slid 50%.
Bank of America chief executive Ken Lewis said in a statement that the first-quarter results "clearly did not meet our expectations". He added: "The weakness in the economy and prolonged disruptions in the capital markets took their toll."
Results included $1.31bn of trading losses compared with income of $1.66bn a year earlier. This was driven primarily by $1.47bn in write-downs of collateralised debt obligations, a security often backed by sub-prime mortgage loans, and $439m for loans to fund leveraged buy-outs. Trading losses were $5.15bn in the fourth quarter of 2007.
Bank of America said the $3.3bn increase in reserves was part of a $4.78bn increase in provisions, to $6.01bn, "due to rising credit costs - particularly in the home equity, small business and homebuilder portfolios". Net charge-offs - loans it does not think are collectable - jumped to $2.72bn, up from $1.43bn a year ago, reflecting housing market deterioration and slowing economic conditions, the company said.
Bank of America said it "remains concerned" about the health of the consumer. In the bank's consumer unit, which includes the nation's biggest credit card business and retail branch network, revenue rose 17%, while earnings dropped 59% due to increased credit costs.Investment-banking profit plunged 92% on the write-downs as revenue fell 41%. Results also included a $776m gain from credit card network Visa's initial public offering last month. - AP
Source:
http://www.theherald.co.uk/
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