Despite problem loans, Bank of America surpasses expectations

Staff and wire services

Published Monday, April 20, 2009 | 8:02 a.m.

Updated Monday, April 20, 2009 | 3:28 p.m.

At a glance ...

+Provision for credit losses on weakening economy: $13.38 billion

+Record revenue driven by acquisitions

+Merrill Lynch contributes more than $3 billion to net income

+Extended $183 billion in credit in the quarter

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Bank of America Corp., the biggest bank in Las Vegas, today said problem loans increased nationwide as the economy weakened in the first quarter.

But the bank, based in Charlotte, N.C., reported earnings that surpassed analysts' expectations and included higher revenue from the purchase of Merrill Lynch & Co.

Investors seemed more interested in the credit quality problems, with B of A stock falling 24 percent, or $2.58, to $8.02.

In the Las Vegas area, Bank of America has some 57 branches with $7.6 billion in deposits.

B of A earned $2.81 billion after paying preferred dividends, or 44 cents per share, compared with a profit of $1.02 billion, 23 cents per share, in the year ago period. Analysts surveyed by Thomson Reuters expected profit of 4 cents per share.

The higher-than-expected earnings could take some heat off Chief Executive Ken Lewis, who has faced calls from shareholders to either give up his job as chairman or be ousted.

Lewis has been up against intense pressure this year over the Merrill purchase, which closed Jan. 1. Shareholders approved the deal before learning of big losses at the New York-based investment and reports surfaced that Merrill Chief Executive John Thain rushed out billions of dollars in bonuses to Merrill employees in his final days as CEO even as Bank of America was begging the government for aid to complete the deal.

The first quarter results include revenue from the company's acquisitions of Merrill and Countrywide Financial Corp., which Bank of America did not own last year.

During the quarter, revenue more than doubled to $35.76 billion, mainly from the addition of Merrill. Analysts expected revenue of $27.13 billion.

But bad news was reported on the credit quality side.

"Credit quality deteriorated further across all lines of business as housing prices continued to fall and the economic environment weakened. Consumers are under significant stress from rising unemployment and underemployment levels. These conditions led to higher losses in almost all consumer portfolios,'' B of A said.

"Declining home values, reduced spending by consumers and businesses and continued turmoil in the financial markets negatively impacted the commercial portfolio. Commercial losses increased from the prior quarter driven by higher broad-based losses in the non-homebuilder portion of the real estate portfolio within Global Banking and the small business portfolio within Global Card Services,'' the bank said.

The provision for credit losses of $13.4 billion rose from $8.5 billion in the fourth quarter and included a $6.4 billion addition to the allowance for loan and lease losses.

Nonperforming assets were $25.7 billion compared with $18.2 billion at Dec. 31 and $7.8 billion at March 31, 2008.

"We understand that we continue to face extremely difficult challenges," Lewis said in a statement.

Bank of America has received $45 billion in government funds as part of the Treasury Department's $700 billion financial rescue package.