NEW YORK – Bank of America Corp. on Monday reported its third-quarter results earlier than planned, revealing a 68 percent profit drop and plans to boost capital by selling stock and halving its dividend.
Like most other major financial institutions, Bank of America has been hit by significant losses in mortgages, credit cards and other souring debt.
Profit fell to $1.18 billion, or 15 cents per share, for the July-to-September period from $3.7 billion, or 82 cents per share, in the same period last year. That was much lower than analysts' estimates of 62 cents per share, according to Thomson Financial.
Bank of America shares dropped another 6 percent in after-hours trading, having fallen $2.26, or 6.6 percent, to close at $32.22 during Monday's session.
To raise capital, the Charlotte, N.C.-based company said it plans to sell $10 billion of common stock and cut its quarterly dividend to 32 cents from 64 cents.
“These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,” said Bank of America CEO Kenneth D. Lewis. “We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months.”
The company reported its results two weeks earlier than scheduled, and just minutes after the Dow Jones industrial average dropped 370 points to finish at 9,955.50, the lowest level in nearly four years. Financial markets around the world have been plunging due to a seize-up in lending.
Bank of America said Monday it made a $6.45 billion provision for credit losses – up from $5.83 billion in the second quarter and from $2.03 billion in the third quarter last year – after seeing massive deterioration in unsecured consumer loans, credit cards and residential mortgages.
To prepare for further deterioration, the bank added nearly $2 billion to its loan and lease loss allowance, which now stands at $20.35 billion, or 2.17 percent of its total loans and leases.
Bank of America has been regarded as a stronger players on the U.S. banking landscape, thanks in large part to its overall size and massive base of deposits. It agreed to buy Merrill Lynch, the world's biggest brokerage, last month after discussions between banking executives and government officials that led to the bankruptcy of Lehman Brothers Holdings Inc. and the government's takeover of American International Group Inc., the world's largest insurer.
Lewis made the decision even as his company continued to absorb the troubled mortgage lender Countrywide Financial Corp. – a major reason behind Bank of America's poor third-quarter results.
