CHARLOTTE, N.C. – Bank of America Corp. said Friday it lost more than $2.2 billion in the third quarter as loan losses kept rising, providing further evidence that consumers are still struggling to pay their bills.
The nation’s second-largest bank said it wrote down loans on its books by almost $10 billion during the July-September period, up almost $1 billion from the second quarter. The bank also added $2.1 billion to its reserves to cover bad loans, bringing its provision for credit losses to $11.7 billion. The bank’s total allowance for loan and lease losses now totals $35.83 billion.
Bank of America’s results were aided by profit from investment bank Merrill Lynch, including income from bond, stock and currency trading.
Its earnings follow the pattern set earlier this week by Citigroup Inc. and JPMorgan Chase & Co., which also reported more loan losses during the third quarter as consumers struggled to keep up with their credit card and mortgage payments. And on Friday, General Electric Co. reported that its GE Capital business, which includes credit cards, saw an 87 percent drop in profits, although it was also weighed down by commercial real estate losses. Together, the reports depict a financial industry that is still deeply troubled.
Banks have predicted for some time that their loan losses would keep rising. And Bank of America’s CEO Ken Lewis confirmed that this trend continues.
“Based on (the) economic scenario, results in the fourth quarter are expected to continue to be challenging as we close the year,” Lewis said on a conference call with analysts.
Bank of America said it lost $2.24 billion, or 26 cents per share, after accounting for the preferred dividends of $1.24 billion. That compared with earnings of $704 million, or 15 cents per share, a year earlier.
Revenue in the quarter increased 33 percent to $26.04 billion.
The loss was 5 cents more per share than the 21 cents forecast by analysts surveyed by Thomson Reuters Inc. Investors sent Bank of America shares down 90 cents, or 5 percent, to $17.20 in morning trading.
“Obviously, credit costs remain high, and that is our major financial challenge going forward,” Lewis said in a statement accompanying the earnings report. “However, we are heartened by early positive signs, such as the leveling of delinquencies among our credit card numbers.”
During the analyst call, Lewis said the bank believes it may have peaked in total credit losses this quarter, “although the levels going forward will continue to be elevated and certain businesses will still experience higher losses.”
Bank of America is considered particularly vulnerable to unemployment, which climbed last month to 9.8 percent in the U.S. Economists predict the jobless rate will pass 10 percent in the coming months.
The bank’s massive portfolio of credit-card loans could help investors determine where the economy is headed and how well the industry at large will fare, said Doug Dannemiller, senior analyst at Boston-based research firm Aite Group.
“As unemployment rates are in the 10 percent range, the results on consumer lending aren’t going to improve until that number gets lower,” Dannemiller said.
The bank has about 53 million consumer and small business customers, making it vulnerable to delinquencies and defaults, yet also ready to thrive when the economy recovers.
Bank of America’s global card services unit loss widened significantly to $1.04 billion from $167 million a year ago.
The loss in the bank’s home loans and insurance division grew to $1.6 billion from $54 million a year ago, as credit costs continued to rise.
The bank, which being investigated by federal authorities for its Merrill acquisition, has received $45 billion in bailout funds as part of the Treasury Departments $700 billion financial rescue package. It’s not known when it will repay the government.
Lewis, who is retiring at year’s end, has agreed to give up his salary and other compensation for 2009.