Credit loss catches Bank of America
LOSSES & LAWSUITS
The bank has reserved $2.03 billion for credit losses, a 73% increase from 2006. Chief executive Kenneth Lewis says the earnings "were not acceptable". The announcement comes after Bank of America, Citigroup and JP Morgan said they would buy an undisclosed amount - reportedly about $80 billion - in struggling investments to increase market confidence in the aftermath of the global credit crunch.
The bank admitted losses of $527 million on complex debt products, whose value is dependant upon flat-lining subprime mortgage assets. Third-quarter trading losses outstripped predictions to reach $1.46 billion, down from Q3 profits of $731 million in 2006.
According to Lewis, the crunch marks the end of Bank of America's 10-year expansion from regional retail bank to superpower in the investment markets. Only in August, Bank of America took a $2 billion stake in Countrywide Financial, the largest US mortgage provider.
Overall, Bank of America investment banking profit has slumped from $1.43 billion in 2006 to $100 million this year, revenues dropping 44%. Lewis has announced a review of Bank of America's future involvement in investment markets and predicts big cuts still to come.
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