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Bank of America posts net loss of $1 billion in 3rd quarter

In an ugly reminder of the depth of consumers' economic troubles, the company records an $11.7-billion expense to cover future loan losses.

October 17, 2009|Walter Hamilton and E. Scott Reckard

NEW YORK AND ORANGE COUNTY — In an ugly reminder of the depth of consumers' economic troubles, Bank of America Corp. on Friday reported a $1-billion net loss for the third quarter, much worse than Wall Street expected.

The company, the country's largest retail lender, recorded an $11.7-billion expense to cover future loan losses, up from a $6.5-billion provision in the third quarter of 2008.

The results pushed Bank of America's share price down 4.6% and helped trigger a down day for stocks overall.

Chief Executive Kenneth D. Lewis told analysts that the bank's "credit losses may have peaked" in the third quarter, but he warned that results would "continue to be challenging" in the fourth quarter.

The loss amounted to 26 cents a common share after accounting for the payment of $1.2 billion in dividends on preferred stock. Analysts had expected a loss of 12 cents a share.

In last year's third quarter, the company earned $1.2 billion, or 15 cents a share.

The third-quarter preferred-stock dividends include $893 million owed to the federal government on its $45-billion investment in the bank under the Treasury Department's financial system bailout.

Bank of America shares sank 84 cents to $17.26 after the earnings release. They remain more than five times their March low of $3.14.

Retail-oriented banks such as Charlotte, N.C.-based BofA, with heavy exposure to home loans and credit cards, are likely to continue struggling in the near term, analysts say.

Meanwhile, Wall Street-oriented banks such as Goldman Sachs Group Inc. are benefiting from a resurgence in their securities-trading businesses. Goldman topped analysts' expectations this week in reporting a tripling of its third-quarter earnings to $3.2 billion.

Bank of America's acquisition last winter of brokerage giant Merrill Lynch & Co. is improving the bank's financial results, Lewis told analysts Friday.

After BofA agreed at the height of the financial crisis last fall to buy Merrill Lynch, the brokerage's losses multiplied, prompting Lewis to consider pulling out of the deal. He ended up going through with it under pressure from federal officials, who subsequently arranged for BofA to receive a $20-billion second round of bailout funds on top of an earlier $25 billion.

Lewis has been harshly criticized by shareholders, legislators and regulators for his handling of the takeover, especially for not disclosing until after the transaction closed early this year Merrill's increased losses or details of its plan to pay employees billions of dollars in bonuses.

Lewis is leaving Bank of America at the end of the year. At the behest of the Treasury Department's pay czar, he has agreed to forgo his 2009 salary and bonus, including about $1 million already paid that he is to return.


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