UPDATE 5-BofA posts $1 bln Q3 loss; consumer credit hurts

Published: 18 Oct 2009 17:03:51 PST

* Q3 EPS loss $0.26; Street forecast loss $0.21

* Credit provision $11.7 bln; card chargeoffs 14 pct

* Credit losses may have peaked - CEO

* Merrill Lynch profit $2.2 bln; investment banking strong

* Shares fall as much as 5.7 pct in morning trading (Updates share price, adds CEO comments from analyst call, adds details on capital)

CHARLOTTE, N.C., Oct 16 - Bank of America Corp posted a $1 billion third-quarter loss 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 totaling $45 billion after acquiring Merrill Lynch & Co and mortgage lender Countrywide at the height of the financial crisis last year. It says it wants to start repaying the money but has not yet done so.

Credit losses on its consumer loans are eating into the bank's results as it tries to raise capital. Bank of America suffered $9.6 billion in credit losses in the third quarter, up from $4.4 billion a year earlier.

"Bank of America could continue to suffer for a while," said Malcolm Polley of Stewart Capital Advisors.

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 third-quarter 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 Friday, responding to an analyst who asked why he had decided to retire.

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' average forecast was a loss of 21 cents per share, according Thomson Reuters I/B/E/S.

Bank of America shares slid as much as 5.7 percent to $17.06 in morning trading before recovering to about $17.40 at midday. The shares rose 29 percent during third quarter but are still down more than 20 percent over the past 12 months.

CREDIT WORRIES

The bank set aside $11.7 billion during the quarter for credit losses, $1.7 billion less than in the second quarter but $5.3 billion more than in the 2008 third quarter.

Losses from home equity loans and residential and commercial mortgages soared, but the business hit hardest was the credit card unit. The unit's chargeoff rate -- the proportion of loans it does not expect to be repaid -- is the highest in the nation at 14.25 percent.

Like rival JPMorgan Chase & Co, Bank of America said that while loan-loss reserves and credit losses are still high, the rate of increase is slowing.

"We believe we may have peaked in total credit losses this quarter," Lewis said.

At the request of the Obama administration's "pay czar," Kenneth Feinberg, Lewis will not receive any compensation for 2009. But he may receive pension benefits and accrued and deferred stock compensation totaling $125 million on retirement, according to an analysis by compensation consultants James F. Reda & Associates.

Bank of America's total assets slipped to $2.251 trillion in the third quarter, down about $3 billion from the second quarter.

JPMorgan on Wednesday reported a $3.6 billion third-quarter profit and said its assets grew by $15 billion in the period, to $2.041 trillion. Like Bank of America, JPMorgan posted a big gain from banking.

Citigroup Inc, the third-largest U.S. bank, on Thursday reported its third-quarter securities and banking revenue fell by a third from a year earlier.

Bank of America has been battling to raise capital to meet an expected rise in capital requirements and to help convince the government it is strong enough to repay some of the bailout money. It agreed last month to sell the long-term assets of its Columbia Management business to Ameriprise Financial Inc for about $1 billion.

"We are ... doing everything we can" to repay the bailout funds, Lewis told analysts, but he said the bank is waiting for government guidance on repayment criteria.

The bank expects regulators to increase scrutiny of common equity capital levels, Chief Financial Officer Joe Price said on the conference call. The bank reported it had $112 billion in common equity capital in the third quarter, equivalent to a Tier 1 common equity ratio of 7.25 percent.

Analysts say regulators could demand a ratio of at least 6 percent, up from 4 percent at present. Regulators have called for banks to hold more capital but have yet to give specific requirements.

Bank of America's Tier 1 common equity ratio is below that of rivals such as JPMorgan, which reported 8.2 percent in the third quarter.

Bank of America's noninterest income spiked to $14.6 billion in the third quarter from $8 billion a year earlier, due largely due to the addition of Merrill Lynch's brokerage and investment banking businesses. The brokerage appears to be stabilizing after an initial outflow of both brokers and assets at the start of the year.