Bank of America boss Ken Lewis is digging himself a deeper hole at his troubled bank, including setting aside an extra $6.4 billion just to cover future bad loans.
Shares lost almost a quarter of their value after the bank’s first-quarter profit of $4.25 billion failed to impress investors who saw the results as more accounting concoctions than smart management.
BofA took a hefty $13.4 billion provision for credit losses — and then set aside the $6.4 billion to address problems management expect to come later.
“Credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve,” Lewis said, adding that hard times could last longer than anticipated. “Whether that turn is later this year or in the first half of 2010, I’m not going to hazard a guess.”
Lewis faces a showdown next week at the annual shareholders meeting amid a media campaign waged by well-heeled investors looking to oust him and shake up the board.
“I don’t see anything that makes me think all of a sudden people are going to take the pressure off Lewis,” said Walter Todd, portfolio chief at Greenwood Capital Associates LLC.
Analysts dissected the first-quarter profit for flaws, and found plenty. For example, the bank’s ill-timed, $50 billion acquisition of Merrill Lynch and its huge network of brokers brought in $3.7 billion in earnings, but they were clobbered by other fumbles — leaving barely $1 billion in net profit.
BofA’s stock plunged $2.58 to $8.02 on the New York Stock Exchange.
Meanwhile, troubled loans soared to $25.7 billion from $7.8 billion in the year-earlier period. The bank also lost $1.8 billion on credit-card services, after posting a profit last year.
Oppenheimer & Co.’s Chris Kotowski said the bank, which has received $45 billion in government funds, may need to raise $36.6 billion by year-end, but Lewis insisted in interviews that it wouldn’t have to raise more capital.
