The fourth-quarter loss is attributed to write-downs and trading losses in the bank's capital markets business, while most of its core business units remained profitable. Nevertheless, Bank of America CEO Kenneth Lewis reiterated that continued economic uncertainty, market turbulence and rising unemployment necessitated additional TARP funding.
The federal government is requiring banks receiving TARP funds to take prerequisite measures including limiting executive compensation and other assurances making repayment a priority. In keeping with these new requirements, Bank of America agreed to sharply cut its quarterly dividend from 32 cents to only a penny over the next three years.
As part of the latest agreement, the Federal Reserve and FDIC will protect Bank of America against further losses on $118 billion worth of capital markets exposure, mostly related to Merrill Lynch, with the bank covering the first $10 billion. In return, the government gets $24 billion in preferred stock, paying 8% annually.
Bank of America stated that it extended at least $115 billion in new loans during last year's fourth quarter, while also setting aside more than $8.5 billion for bad loans. Net charge-offs nearly tripled over the year to $5.5 billion, or close to 2.4% of average loans and leases.
The $45 billion total in TARP funds received by Bank of America is now equal to that going to New York City-based Citigroup Inc. Some analysts credited Bank of America with having a very strong balance sheet prior to its takeover of Merrill Lynch.
Lewis says he expects Bank of America to return to profitability once the economy returns to normal. He added intently during a conference call: "The recession and credit crisis will end someday, and people will remember that our company was there for them in hard times."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
