BofA earnings drop 68%
Business First of Buffalo - by Mark Calvey
Bank of America said its third-quarter earnings, released two weeks early, fell 68 percent, the dividend is being halved and the bank will raise $10 billion as the banking industry faces the most stressful times since the Great Depression.
“These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,” said Ken Lewis, BofA’s (NYSE: BAC) chairman and CEO. “We believe it is prudent to raise capital to very substantial levels in this uncertain environment.”
The bank, the sixth largest in the Buffalo area with deposits of $1.1 billion, is moving aggressively to raise its capital base as it watches its crosstown rival Wachovia implode. Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC) are fighting over troubled Wachovia.
Bank of America, considered to be one of the nation’s healthiest banks, reported a third-quarter profit of $1.18 billion, down from a profit of $3.7 billion a year ago. That works out to 15 cents a share for the most recent quarter, compared with 82 cents a share a year ago in the same period.
But Bank of America’s loan performance is deteriorating rapidly. The bank said third-quarter net charge-offs — loans the bank has given up on — more than doubled from a year ago to 1.84 percent of total average loans and leases in dollar terms.
Last year’s third quarter charge-offs were 0.80 percent and this year’s second quarter was 1.67 percent.
The bank cited further weakening in the housing market and eroding economic conditions for the higher loan losses.
The bank’s nonperforming assets — an earlier stage in the pipeline of loans going bad — soared to 1.42 percent from 0.43 percent a year ago and 1.13 percent in this year’s second quarter.
The quarterly dividend will be scaled back to 32 cents per share from 64 cents. CEO Ken Lewis signaled a dividend cut was coming when he told CNBC, shortly after announcing its purchase of Merrill Lynch (NYSE: MER) that everything — including the dividend — was on the table.
The lower dividend payout will be paid the day after Christmas, hitting shareholders like a lump of coal in their stockings.
But the dividend cut will keep $1.4 billion in the company’s coffers each quarter.
The Charlotte bank also said it plans to raise $10 billion in a common stock offering.
BofA is preparing for darker days ahead as the economic slowdown boosts credit losses.
“We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability,” Lewis said.
mcalvey@bizjournals.com / (415) 288-4950
Related Industry News |
Latest News |
Most Viewed Stories |
Most Emailed Stories |
