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Bank of America posts first loss in 17 years, loses $2.39 billion; gets more aid
Bank of America posts first loss in 17 years
By Jonathan Stempel
NEW YORK (Reuters) – Bank of America Corp (BAC.N), posted its first quarterly loss in 17 years on Friday and slashed its dividend, hours after winning a multibillion-dollar lifeline from the U.S. government to help absorb Merrill Lynch, which lost a record $15.31 billion in the quarter.
The dismal results came as the largest U.S. bank faced mounting pressure from investors who questioned how well it will absorb a tidal wave of soured loans in an economy showing no signs of escaping a deep recession.
Bank of America cut its quarterly dividend to a penny from 32 cents, and Chief Executive Kenneth Lewis said net losses may be at or above the fourth-quarter level for several quarters.
"It is difficult to focus on what is going right at this time," a clearly downbeat Lewis said on a conference call.
But, he added, the "severe" recession and credit crisis "will end some day, and people will remember that our company was there for them in hard times."
Hours after it won $20 billion in new capital from the government's $700 billion Troubled Asset Relief Program (TARP), the bank reported a quarterly loss of $1.79 billion, or 48 cents per share, compared with a year-earlier profit of $268 million, or 5 cents.
Lewis sought government help after it became clear that Merrill's credit losses were far higher than expected, and had threatened last month to scrap the $19.4 billion takeover without government help.
Lewis said the government worried that scuttling the merger could create "serious systemic harm." He said the Federal Reserve and Treasury Department gave assurances that they would provide necessary help if the merger closed.
Bank of America's purchase of Merrill Lynch and its July acquisition of Countrywide Financial Corp gave the bank significant exposure to several major areas of the financial system, just as the economy's decline was accelerating.
"They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal," said Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania, which owns the bank's shares.
CREDIT LOSSES SKYROCKET
Excluding merger costs, the loss was 44 cents per share. Net revenue rose 22 percent to $15.68 billion.
Analysts, on average, expected profit of 2 cents per share, according to Reuters Estimates.
The bank set aside $8.54 billion for bad loans, up from $6.45 billion in the third quarter and $3.31 billion a year earlier. Net charge-offs nearly tripled from a year earlier to $5.54 billion, or 2.36 percent of average loans and leases.
At Merrill, the loss was $9.62 per share, driven by significant writedowns. Bank of America said it expects the purchase to reduce earnings per share for two years, and still expects $7 billion of cost savings.
With the latest capital infusion, Bank of America has taken $45 billion in TARP money, the same amount as Citigroup Inc (C.N), which won its own rescue package in November.
Citigroup also reported fourth-quarter results on Friday, posting a $8.29 billion loss, and said it plans to separate into two units after its own massive credit losses.
Shares of Bank of America rose 14 cents to $8.46 in premarket trading. Through Thursday, they had fallen more than 81 percent from their 52-week high last February.
GOVERNMENT SHARES IN LOSSES
The rescue package for Bank of America calls for the government to share in losses on $118 billion in residential and commercial mortgages, derivatives and corporate debt.
The bank will absorb the first $10 billion of losses, the government the next $10 billion, and the government 90 percent of the rest.
Lewis said the rescue package will help it operate as normally as possible. The bank said it had extended more than $115 billion in new loans in the quarter and was adding mortgage staff to accommodate more refinancings.
"This company will generate huge amounts of profit" when the economy returns to normal, Lewis said.
Bank of America is also struggling with defections of top Merrill executives, including brokerage chief Robert McCann and Greg Fleming, who was expected to run the combined investment bank.
Lewis said he is "happy" that former Merrill Chief Executive John Thain is taking a major role at the bank as head of global banking, securities and wealth management.
Bank of America has said it expects to cut 30,000 to 35,000 jobs over three years following the Merrill merger, on top of 7,500 job losses following the Countrywide acquisition.
(Reporting by Jonathan Stempel and Elinor Comlay; editing by Lisa Von Ahn and Jeffrey Benkoe)
Bank of America loses $2.39 billion; gets more aid
By IEVA M. AUGSTUMS
CHARLOTTE, N.C. – Escalating credit costs forced Bank of America Corp. to report a $2.39 billion fourth-quarter loss, hours after it convinced the federal government it needed a multibillion-dollar lifeline to survive the absorption of Merrill Lynch's hefty losses.
After a marathon negotiating session, the Bush administration agreed early Friday to give Bank of America an additional $20 billion worth of fresh capital to help it stomach losses at Merrill Lynch & Co, which the company acquired Jan. 1. The funds are in addition to $25 billion in TARP rescue funds Bank of America has already received.
The new infusion means Bank of America has now taken $45 billion of government aid, the same amount as Citigroup Inc. In connection with the package, Bank of America slashed its quarterly dividend to a mere penny from 32 cents, agreed to further limit executive pay and and work more intensively to modify the mortgages of distressed homeowners.
The government's agreement with Bank of America mentions "enhanced executive compensation restrictions" but doesn't elaborate. However, Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee, last week issued an outline of his proposal to attach strings to spending the rest of the bailout money. It would slap strict limits on executive compensation — both for companies receiving new federal money and those that already have — including a ban on any bonuses for the 25 highest paid executives.
Lawrence H. Summers, a top aide to Obama, sent a letter to House and Senate leaders Thursday detailing plans for the remaining $350 billion in bailout funds, including a requirement that "executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid."
For the fourth quarter of 2008, Charlotte-based BofA posted a loss after paying preferred dividends of $2.39 billion, or 48 cents per share, down sharply from a profit of $215 million, or 5 cents per share, a year ago. BofA cited rising credit costs, significant writedowns and trading losses in its capital markets businesses amid the deepening economic recession.
Merrill Lynch posted a loss of $15.31 billion, or $9.62 per share, for the period — underscoring Bank of America's assertion that it needed extra U.S. aid in order to absorb the investment bank's bad mortgage bets.
"Last quarter we said that market turbulence, economic uncertainty, and rising unemployment would take its toll on quarterly earnings, and that has certainly been the result for the fourth quarter," Chief Executive Ken Lewis said during a conference call with investors.
"Congress has passed a financial stabilization plan as well as other programs put in place, starting to stabilize the market and promote liquidity, but at a pace slower than any of us would like," he added.
Quarterly revenue after interest expense rose 19 percent to $15.98 billion from $13.45 billion a year earlier. Net interest income, or the money banks make on loans minus what it pays out in interest on personal bank accounts, rose 37 percent to $13.41 billion from $9.82 billion. The increase was fueled by higher market-based income, the favorable rate environment, loan growth and the acquisition of Countrywide.
But noninterest income, or the cash banks make from mortgage loan servicing fees and other fees and charges, declined 29 percent to $2.57 billion. Sales and trading losses in BofA's capital markets and advisory services segments more than offset higher mortgage banking income, and gains on sales of debt securities.
Under terms of the latest agreement, the Federal Reserve and Federal Deposit Insurance Corp. also agreed to protect BofA against further losses on $118 billion in capital markets exposure, mainly linked to Merrill Lynch. BofA will cover the first $10 billion in losses and the government will cover 90 percent of any subsequent losses.
As compensation for the new support, the government will get $24 billion in preferred stock which will pay an annual interest rate of 8 percent.
In total, the government has put about $163 billion at Bank of America's disposal.
Bank of America said the rescue package will help it operate as normally as possible.
The company said it extended more than $115 billion of new loans during the fourth quarter and added mortgage staff to accommodate increased refinancings and loan modifications.
Even so, the bank has its hands full with soaring credit losses.
Bank of America set aside $8.54 billion for bad loans in the fourth quarter, up from $3.31 billion a year earlier. Net charge-offs, or loans written off as unpaid, nearly tripled from a year earlier to $5.54 billion, or 2.36 percent of average loans and leases.
For the full year, earnings after preferred dividends totaled $2.56 billion, or 55 cents per share, down from $14.80 billion, or $3.30 per share, in fiscal 2007.
Bank of America shares rose 30 cents, or 4 percent, to $8.62 in premarket electronic trading, having closed at $8.32 Thursday.
By Jonathan Stempel
NEW YORK (Reuters) – Bank of America Corp (BAC.N), posted its first quarterly loss in 17 years on Friday and slashed its dividend, hours after winning a multibillion-dollar lifeline from the U.S. government to help absorb Merrill Lynch, which lost a record $15.31 billion in the quarter.
The dismal results came as the largest U.S. bank faced mounting pressure from investors who questioned how well it will absorb a tidal wave of soured loans in an economy showing no signs of escaping a deep recession.
Bank of America cut its quarterly dividend to a penny from 32 cents, and Chief Executive Kenneth Lewis said net losses may be at or above the fourth-quarter level for several quarters.
"It is difficult to focus on what is going right at this time," a clearly downbeat Lewis said on a conference call.
But, he added, the "severe" recession and credit crisis "will end some day, and people will remember that our company was there for them in hard times."
Hours after it won $20 billion in new capital from the government's $700 billion Troubled Asset Relief Program (TARP), the bank reported a quarterly loss of $1.79 billion, or 48 cents per share, compared with a year-earlier profit of $268 million, or 5 cents.
Lewis sought government help after it became clear that Merrill's credit losses were far higher than expected, and had threatened last month to scrap the $19.4 billion takeover without government help.
Lewis said the government worried that scuttling the merger could create "serious systemic harm." He said the Federal Reserve and Treasury Department gave assurances that they would provide necessary help if the merger closed.
Bank of America's purchase of Merrill Lynch and its July acquisition of Countrywide Financial Corp gave the bank significant exposure to several major areas of the financial system, just as the economy's decline was accelerating.
"They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal," said Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania, which owns the bank's shares.
CREDIT LOSSES SKYROCKET
Excluding merger costs, the loss was 44 cents per share. Net revenue rose 22 percent to $15.68 billion.
Analysts, on average, expected profit of 2 cents per share, according to Reuters Estimates.
The bank set aside $8.54 billion for bad loans, up from $6.45 billion in the third quarter and $3.31 billion a year earlier. Net charge-offs nearly tripled from a year earlier to $5.54 billion, or 2.36 percent of average loans and leases.
At Merrill, the loss was $9.62 per share, driven by significant writedowns. Bank of America said it expects the purchase to reduce earnings per share for two years, and still expects $7 billion of cost savings.
With the latest capital infusion, Bank of America has taken $45 billion in TARP money, the same amount as Citigroup Inc (C.N), which won its own rescue package in November.
Citigroup also reported fourth-quarter results on Friday, posting a $8.29 billion loss, and said it plans to separate into two units after its own massive credit losses.
Shares of Bank of America rose 14 cents to $8.46 in premarket trading. Through Thursday, they had fallen more than 81 percent from their 52-week high last February.
GOVERNMENT SHARES IN LOSSES
The rescue package for Bank of America calls for the government to share in losses on $118 billion in residential and commercial mortgages, derivatives and corporate debt.
The bank will absorb the first $10 billion of losses, the government the next $10 billion, and the government 90 percent of the rest.
Lewis said the rescue package will help it operate as normally as possible. The bank said it had extended more than $115 billion in new loans in the quarter and was adding mortgage staff to accommodate more refinancings.
"This company will generate huge amounts of profit" when the economy returns to normal, Lewis said.
Bank of America is also struggling with defections of top Merrill executives, including brokerage chief Robert McCann and Greg Fleming, who was expected to run the combined investment bank.
Lewis said he is "happy" that former Merrill Chief Executive John Thain is taking a major role at the bank as head of global banking, securities and wealth management.
Bank of America has said it expects to cut 30,000 to 35,000 jobs over three years following the Merrill merger, on top of 7,500 job losses following the Countrywide acquisition.
(Reporting by Jonathan Stempel and Elinor Comlay; editing by Lisa Von Ahn and Jeffrey Benkoe)
Bank of America loses $2.39 billion; gets more aid
By IEVA M. AUGSTUMS
CHARLOTTE, N.C. – Escalating credit costs forced Bank of America Corp. to report a $2.39 billion fourth-quarter loss, hours after it convinced the federal government it needed a multibillion-dollar lifeline to survive the absorption of Merrill Lynch's hefty losses.
After a marathon negotiating session, the Bush administration agreed early Friday to give Bank of America an additional $20 billion worth of fresh capital to help it stomach losses at Merrill Lynch & Co, which the company acquired Jan. 1. The funds are in addition to $25 billion in TARP rescue funds Bank of America has already received.
The new infusion means Bank of America has now taken $45 billion of government aid, the same amount as Citigroup Inc. In connection with the package, Bank of America slashed its quarterly dividend to a mere penny from 32 cents, agreed to further limit executive pay and and work more intensively to modify the mortgages of distressed homeowners.
The government's agreement with Bank of America mentions "enhanced executive compensation restrictions" but doesn't elaborate. However, Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee, last week issued an outline of his proposal to attach strings to spending the rest of the bailout money. It would slap strict limits on executive compensation — both for companies receiving new federal money and those that already have — including a ban on any bonuses for the 25 highest paid executives.
Lawrence H. Summers, a top aide to Obama, sent a letter to House and Senate leaders Thursday detailing plans for the remaining $350 billion in bailout funds, including a requirement that "executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid."
For the fourth quarter of 2008, Charlotte-based BofA posted a loss after paying preferred dividends of $2.39 billion, or 48 cents per share, down sharply from a profit of $215 million, or 5 cents per share, a year ago. BofA cited rising credit costs, significant writedowns and trading losses in its capital markets businesses amid the deepening economic recession.
Merrill Lynch posted a loss of $15.31 billion, or $9.62 per share, for the period — underscoring Bank of America's assertion that it needed extra U.S. aid in order to absorb the investment bank's bad mortgage bets.
"Last quarter we said that market turbulence, economic uncertainty, and rising unemployment would take its toll on quarterly earnings, and that has certainly been the result for the fourth quarter," Chief Executive Ken Lewis said during a conference call with investors.
"Congress has passed a financial stabilization plan as well as other programs put in place, starting to stabilize the market and promote liquidity, but at a pace slower than any of us would like," he added.
Quarterly revenue after interest expense rose 19 percent to $15.98 billion from $13.45 billion a year earlier. Net interest income, or the money banks make on loans minus what it pays out in interest on personal bank accounts, rose 37 percent to $13.41 billion from $9.82 billion. The increase was fueled by higher market-based income, the favorable rate environment, loan growth and the acquisition of Countrywide.
But noninterest income, or the cash banks make from mortgage loan servicing fees and other fees and charges, declined 29 percent to $2.57 billion. Sales and trading losses in BofA's capital markets and advisory services segments more than offset higher mortgage banking income, and gains on sales of debt securities.
Under terms of the latest agreement, the Federal Reserve and Federal Deposit Insurance Corp. also agreed to protect BofA against further losses on $118 billion in capital markets exposure, mainly linked to Merrill Lynch. BofA will cover the first $10 billion in losses and the government will cover 90 percent of any subsequent losses.
As compensation for the new support, the government will get $24 billion in preferred stock which will pay an annual interest rate of 8 percent.
In total, the government has put about $163 billion at Bank of America's disposal.
Bank of America said the rescue package will help it operate as normally as possible.
The company said it extended more than $115 billion of new loans during the fourth quarter and added mortgage staff to accommodate increased refinancings and loan modifications.
Even so, the bank has its hands full with soaring credit losses.
Bank of America set aside $8.54 billion for bad loans in the fourth quarter, up from $3.31 billion a year earlier. Net charge-offs, or loans written off as unpaid, nearly tripled from a year earlier to $5.54 billion, or 2.36 percent of average loans and leases.
For the full year, earnings after preferred dividends totaled $2.56 billion, or 55 cents per share, down from $14.80 billion, or $3.30 per share, in fiscal 2007.
Bank of America shares rose 30 cents, or 4 percent, to $8.62 in premarket electronic trading, having closed at $8.32 Thursday.
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