Friday January 16, 01:56 PM
Bank of America profit plunges 73% on heavy write-downs
WASHINGTON (AFP) - Bank of America (NYSE: IKJ - news) said Friday that 2008 net profit fell 73 percent from the prior year, to 4.0 billion dollars, due to rising credit costs and heavy write-downs.
The largest US bank by assets, which just received a new capital injection of 20 billion dollars from the government in exchange for stock, had reported a 14.9 billion dollar net profit for 2007.
For the fourth quarter, Bank of America posted a loss of 1.7 billion dollars, after managing a modest profit of 268 million dollars a year earlier.
The loss per share in the final three months of 2008 was 48 cents, much worse than analysts' consensus forecasts of eight cents.
The banks said the losses were driven by escalating credit costs and significant write-downs and trading losses in the capital markets businesses.
"These actions reflect the deepening economic recession and extremely challenging financial environment, both of which significantly intensified in the last three months of 2008," the bank said.
The financial results did not include the acquisition of Merrill Lynch (NYSE: MER - news) , which was finalized on January 1. Merrill Lynch lost 15.3 billion dollars in the fourth quarter.
The US authorities threw Bank of America a new lifeline after midnight Friday. Conditions for the new aid include meeting strict restrictions on executive pay and compensation, and implementing a mortgage loan modification program, the US Treasury Department said in a joint statement with the Federal Deposit Insurance Corporation (FDIC).
The Treasury said that it "will invest 20 billion dollars" in BofA from the Troubled Asset Relief Program (TARP) "in exchange for preferred stock with an eight percent dividend to the Treasury."
The Treasury and the FDIC also said they would provide insurance of 118 billion dollars to protect against further losses on selected capital markets exposure, mainly from the former Merrill Lynch portfolio.
"The objective of this program is to foster financial market stability and thereby to strengthen the economy and protect American jobs, savings, and retirement security," Treasury said.
BofA had already received 25 billion dollars in capital injections from the TARP, set up in early October to aid at-risk firms in the global credit crisis.
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