Bank of America Announces Third Quarter Net Loss of $1.0 Billion
Credit Cards and Mortgages Are the Main Contributors
A huge driver for the $1 billion net loss is related to charge-offs in both the consumer and commercial markets. The biggest driver in the consumer market was the nonperforming Asset Activity (NPA) increases in residential mortgage properties specifically the troubled California and Florida housing markets. Commercial NPA drivers centered on commercial real estate, which contributed to 44% of BAC's NPA increase. Another contributing factor to the commercial NPA increase were commercial and industrial loans which made up the other half of the commercial NPA increase.
The bank's credit card business is in dire straights with many accounts in collections and heavy charge-offs that have helped to put a huge dent in the bank's reserves. When asked about the long term plans for it's credit card business, the bank could not provide a definitive answer other than they are already looking into ways to restructure it.
In the conference call, CEO Ken Lewis advised, "we believe we may have peaked in total credit losses this quarter, although the levels going forward will continue to be elevated and certain businesses will still experience higher losses."
Lewis also cautioned that, "consumer charge-offs may be close to peaking in dollar terms year end, although they will stay elevated."
BAC stated during the webcast that they are hopeful the economy will stabilize. The bank advised it is actively looking to make "good loans" in the commercial market with middle market loans and in the consumer market for first mortgages.
"Our outlook for the economy is close to the consensus view with unemployment peaking around the 10% level," Lewis states. "We believe the pace of new bankruptcy for individuals have slowed somewhat but still see some additional pressure on home prices. Based on this economic scenario, results in the fourth quarter were expected to continue to be challenging as we close the year."
Even with BAC's hopeful outlook of the economy, it (the economy) is still suffering. With most of BAC's losses stemming from the consumer market, primarily the mortgage and credit card sectors, the outlook in reality does not look to get better entering 2010. Consumers continue to lose jobs and with the Social Security Administration announcing on October 15, 2009 that there will be no cost of living raise for 2010, consumer's ability to repay debts will continue to diminish.
Another factor to take into consideration for BAC's near future is the ongoing selection of a successor for CEO Ken Lewis who announced last month that he would be retiring at year end. However, the company does have one glimmer of hope, which is the Merrill Lynch side of the business which the bank acquired last year. The company endured lots of controversy for the purchase, however, that controversial move, is paying off and may be the saving grace of Bank of America.
Resources
Bank of America Press Release of 3rd Qtr Losses
Live webcast of Bank of America Investor Conference Call 9:30am EDT
Bank of America's Third Quarter 2009 Earnings Presentation
Bank of America's Supplemental Third Quarter 2009 Financial Information
Published by ShawnTe Pierce - Featured Contributor in Beauty and Lifestyle
ShawnTe Pierce is a freelance fashion designer, writer and editor with over a decade of professional experience in fashion, beauty, finance and Christian Studies. With a Bachelor's of Science in Apparel... View profile
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5 Comments
Post a CommentYikes - if B of A is in trouble, we really have problems. they bought out 2 or 3 other banks since the crisis, and have always been pretty solvent.
OMG...these guys never quit. Great article here.
I agree Shirley. I know we want nice things, but we should try to live on bare necessities at best. I am a recovery beauty product junkie and have pared down my spending to buying the necessities like shampoo and soap with the occasional tube of mascara. ;)
Oh my, there seems to be no end to the economic crisis. Seems like you can't put your whole trust in any institution of man. We Americans need to get back to the basics: God, family and country. We also need a more realistic American dream. The American dream has become too grandiose, energized by unrealistic expectations and greed. We need to reexamine our values, big time.
NOTE: My editor attempted to edit out "$1.0 billion" from the opening paragraph and left the "$" by mistake. The sentence original read as follows: "On October 16, 2009 Bank of America (BAC) announced their third quarter financial report with an astonishing $1.0 billion net loss." - Thank You.