STATE OF SHOCK
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The nation’s bruised big banks could face even darker days ahead, judging from the stunning losses at Bank of America.
The banking giant yesterday became the latest financial institution to disclose steep losses due to the housing recession and credit crisis.
Bank of America, the second-largest bank, which also boasts the largest consumer-banking network, posted a bigger than expected 32 percent plunge in third-quarter profits, which fell to $3.7 billion, or 82 cents per share, from $5.42 billion, or $1.18, a year earlier. Revenue sank 12 percent to $16.3 billion.
Losses from bad loans, trading and write-downs exceeded $3.7 billion. Profit from consumer banking, its largest business, fell 16 percent, which cast a pall on consumer activity for the upcoming holiday season.
Profits at the corporate and investment banking division fell a stunning 93 percent to $100 million from $1.43 billion last year.
“We should have done better,” CEO Kenneth Lewis lamented, adding that he’s ready to wash his hands of the risks of investment banking.
Although Bank of America has grown faster than any other big bank in the past two years, it has trailed badly in attempts to set up Wall Street investment banking operations.
“I’ve had all of the fun I can stand in investment banking at the moment,” Lewis said. “So to get bigger in it is not something I really want to do.”
Analysts were alarmed that the bank’s troubles had spread from the mortgage mess and credit bottlenecks into its other key businesses.
“We knew the credit situation was going to be bad, but this was worse than expected,” said Michael Mullaney of Fiduciary Trust Co.
Mullaney said the bank may need to set aside more reserves to offset damage from a possible killer iceberg of consumer losses lurking beneath the surface. It’s already set aside $2.03 billion for those losses, up more than 73 percent from a year ago.
Bank of America’s shares tumbled $1.18 to $48.85, off 2.4 percent.
Meanwhile, Washington Mutual’s shares skidded $2.55, or 7.7 percent, to $30.52 – a five-year low – a day after it reported a 72 percent drop in quarterly profits due to the housing recession.
By contrast, The Bank of New York Mellon Corp., a custodial banking company, reported an 82 percent jump in profits yesterday. Wall Street’s wild market volatility added to its fortunes because the volatility brought in more fees.