Bank of America said its quarterly profit sank 95 percent, hurt by more than $7 billion of losses tied to write-downs, poor trading decisions and mounting credit woes, but shares gained amid a forecast for a positive 2008.
Fourth-quarter net income for the second-largest U.S. bank fell to $268 million, or 5 cents per share, from $5.26 billion, or $1.16, a year earlier.
Analysts' average forecast was a profit of 19 cents per share, according to Reuters Estimates.
Bank of America shares opened sharply lower but later rose about 7 percent as the broader banking sector moved higher. Shares were down as much as 7.6 percent earlier but recovered after Lewis said he did not expect to cut the bank's quarterly dividend and forecast 2008 profit "well above" $4.00 per share, absent a major market disruption.
Results reflected $5.44 billion of trading losses, compared with a year-earlier profit of $460 million. This reflected a $5.28 billion write-down related to collateralized debt obligations, which the bank said reduced trading profit by $4.5 billion and other income by about $750 million.
Charlotte, N.C.-based Bank of America also set aside $1.74 billion for credit losses, including a $1.33 billion addition to reserves. It also incurred $800 million of losses and write-downs to help some money market mutual funds exposed to risky debt maintain the $1 per share net asset value that all such funds try to keep.
The bank's Tier-1 capital ratio, a measure of its ability to cover losses, fell to 6.87 percent in the fourth quarter from 8.22 percent in the third quarter. Regulators say a 6 percent ratio reflects a "well-capitalized" bank.
"We certainly are not pleased with our performance," Chief Executive Kenneth Lewis said in a statement. "We are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half."
Last week, Bank of America set plans to cut 650 jobs in its markets and investment banking unit, including deep cuts in structured products.
The bank said it ended the year with $15.65 billion of net exposure to super-senior CDOs, before write-downs.
Analysts have said market conditions may prompt Bank of America to renegotiate its planned $4 billion purchase of Countrywide Financial , the largest U.S. mortgage lender.
When the deal was announced on Jan 11, it valued Countrywide at $7.16 per share. Countrywide shares fell 10.7 percent to $4.43 in pre-market trade.
Bank of America joined Citigroup, JPMorgan Chase and other banks in reporting losses related to leveraged loans, mortgages, consumer credit, or a combination.
Last week, JPMorgan said quarterly profit fell 34 percent to $2.97 billion, while Citigroup posted a record $9.83 billion quarterly loss.
Bank of America generates more of its business in the United States, exposing it more to weakening economic conditions at home, such as in housing.
Its profit from consumer and small-business banking fell 28 percent to $1.87 billion. Net interest margin fell to 2.61 percent from 2.75 percent a year earlier but held steady from the third quarter.
The fourth-quarter results were the first to reflect the bank's $21 billion purchase on Oct. 1 of ABN Amro Holding's LaSalle Bank.
Corporate and investment banking operations posted a $2.76 billion loss, compared with a year-earlier profit of $1.4 billion. Wealth and investment management profit fell 42 percent to $334 million.
The bank ended the quarter with $1.72 trillion of assets.
Bank of America shares closed Friday at $35.97 on the New York Stock Exchange. Through Friday, they had fallen 33 percent in the last year, compared with a 34 percent drop in the Philadelphia KBW Bank Index.
Write-Downs Right Thing, Lewis Says
CEO Lewis said the bank's fourth-quarter write-downs were appropriate.
Responding on a conference call to a question about whether the quarter was a "kitchen sink" quarter, Lewis said: "We tried to be as prudent as possible in assessing everything we could assess, and do the right thing; but you do have parameters under which you operate, and you have accountants looking at things that you do; so within reason we think we did what we should have done."