Bank of America posted a quarterly profit that topped Wall Street forecasts, but the largest US bank warned of a fresh surge in troubled loans from credit card, mortgage and business customers due to the weak economy.
Chief executive Kenneth Lewis said tough economic conditions will hurt results into 2010. The bank set aside $13.38 billion for bad loans for a second straight quarter, and said net charge-offs totalled $8.7 billion, up 25 percent from the prior three-month period.
Nonperforming assets surged 21 per cent to $30.98 billion. The bank added $4.63 billion to reserves for bad loans, ending with $35.78 billion.
“Growth in charge-offs and non-performing assets still scares the daylights out of me," said Paul Miller, an analyst at FBR Capital Markets.
Charlotte, North Carolina-based Bank of America said today second-quarter net income applicable to common shareholders fell 25 per cent to $2.42 billion, or 33 cents per share, from $3.22 billion, or 72 cents, a year earlier.
Before preferred stock dividends in both periods, profit fell 5 per cent to $3.22 billion. Net revenue rose 61 per cent to $32.77 billion, helped by the acquisition of Merrill Lynch.
Analysts on average expected profit of 29 cents per share on revenue of $33.26 billion, according to Reuters Estimates.
“Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010,” Mr Lewis said.
Bank of America shares fell 18 cents to $12.99 in premarket trade. Through yesterday, the shares had fallen 6 per cent this year, compared with a 14 per cent drop in the KBW Bank Index.
Results included a $5.3 billion pre-tax gain from selling part of its stake in China Construction Bank.
They also included $713 million of dividend payments tied to a federal bailout, and a charge to bolster a federal deposit insurance fund.
Mr Lewis faces strong pressure from investors and regulators to improve performance after the bank's acquisition of Merrill on January 1st, which caused its shares to tumble.
Congress is investigating whether Lewis was pushed to go through with the merger and withheld information about Merrill's problems from investors. New York Attorney General Andrew Cuomo is investigating the bank's role in $3.62 billion of bonuses that Merrill awarded.
Reuters