Bank Of America Unveils Mixed Q1 Picture

by Philip Morton, Investors Offshore.com

23 April 2008

Bank of America on Monday reported that its first quarter 2008 net income had declined to USD1.21bn from USD5.26bn a year earlier.

Diluted earnings per share fell 80% to USD0.23 from USD1.16 in the same period in 2007.

"Despite revenue growth in most of our businesses, these results clearly did not meet our expectations," explained Kenneth D. Lewis, chairman and chief executive officer.

He continued: "The weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance. That said, we are continuing to invest in growth initiatives across the company, and believe our core strengths - including our diverse income stream, liquidity and capital - put us in a strong position to withstand the jolts to the system and emerge even stronger when conditions improve."

With regard to the outlook for the US economy, Lewis noted that gross domestic product (GDP) growth is expected to be minimal at best in the second quarter, with a slight pickup in the second half of the year.

"Our earnings power from our core business activities is strong and growing," Lewis announced, going on to state:

"We are bringing innovative new products to market, taking market share and expanding customer relationships across the company. Nevertheless, we remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices."

The primary factors reducing Q1 earnings were:

• Provision expense increased by USD4.78bn from a year previous, to USD6.01 billion due to rising credit costs - particularly in the home equity, small business and homebuilder portfolios - including a USD3.30 billion increase to the reserve.
• Trading-related losses were USD1.31bn, compared with income of USD1.66bn a year earlier, driven primarily by USD1.47bn in writedowns of collateralized debt obligations (CDOs), and USD439mn in writedowns of leveraged loans.Trading-related losses were USD5.15bn in the fourth quarter of 2007, which included CDO-related writedowns of USD5.28bn.

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