Volatile Market Will Hurt Bank of America's Earnings


Bank of America, the second-largest U.S. bank, said after markets closed Monday that recent volatility in capital and credit markets will have a "meaningful impact" on third-quarter results at its corporate and investment bank.

Speaking at a conference in San Francisco that the bank sponsored, Chief Financial Officer Joe Price said results are being hurt by "unprecedented dislocations" in the credit markets, as investors ascribe greater risk to a variety of loans and securities where the bank has exposure.

He said these areas including high-yield loans to fund corporate buyouts, short-term debt known as commercial paper, and subprime mortgages, where the bank has exposure in capital markets. It has not offered subprime home loans since 2001.

A Bank of America branch.
Nell Redmond

Price also said investors have shied away from some assets with no apparent credit risks, including "jumbo" prime home loans. Such new sensitivity toward risk has hurt the corporate and investment bank's results mostly in trading, he said.

"These are not normal times," Price said. "I cannot remember when credit markets in particular have been as volatile and unpredictable as they have been for the last few months."

Charlotte, North Carolina-based Bank of America has joined a growing list of financial companies saying difficult conditions in capital markets will hurt profit.

Earlier on Monday, Cleveland-based National City , the ninth-largest U.S. bank, projected a third-quarter mortgage banking loss of around $160 million, the high end of its $130 million to $160 million forecast.

Also on Monday, New York-based E*Trade Financial Corp, best known as an online brokerage, said it will stop offering home loans through brokers and write down some mortgage-related securities. It slashed its full-year profit forecast.

Merrill Lynch said on Friday that shaky credit markets forced it to reduce the value of securities linked to subprime mortgages and other securities.

Bank of America and Merrill Lynch did not quantify the expected negative impact from market uncertainties.

Price nevertheless said Bank of America's consumer operations, its largest business, was "well positioned to weather the current storm" in mortgages. The bank still believes consumer credit card losses peaked in the second quarter, he said.

Bank of America's corporate and investment bank generated $3.12 billion of profit from January to June, about 28% of the $11.02 billion reported for the entire company.

Analysts on average expect Bank of America to earn $1.21 per share in the third quarter, according to Reuters Estimates.

Four major Wall Street banks are set to report quarterly results this week, beginning with Lehman Brothers on Tuesday. This should provide further information on the impact of market turmoil on financial companies.

Bank of America shares have fallen 7.3% this year. The bank expects to report quarterly results on Oct. 18.