Profit Plummets at BofA as it Pumps up Loan Loss Reserves

Bank of America (NYSE: BAC) reported today its first quarter profits fell 77 percent to $1.2 billion, and that it added $3.3 billion to its loan loss reserves to reach $6 billion. The bank also wrote down $1.5 billion on its collateralized debt obligations (CDOs) and another $439 million on its leveraged loans.

Net revenues declined 6 percent to $17.3 billion from $18.5 billion in the first quarter a year earlier.

The bank’s net charge-offs tallied $2.7 billion, or 1.25 percent of total average loans and leases compared with nearly $1.4 billion in the first quarter of 2007. Total managed net losses were $4.1 billion, or 1.69 percent of total average managed loans and leases compared with $2.6 billion, or 1.26 percent in the first quarter of 2007.

The Card Services division saw its managed net revenue increase 21 percent to $7.3 billion due to growth in interest and non-interest income, average loans and leases, allocation of the Visa, Inc. IPO gain and higher card income.
      
However, net income for the card group of $670 million was down 39 percent due to higher credit costs. 

The Consumer Real Estate division reported $1.3 billion in net revenue, up 57 percent, as mortgage banking income more than doubled to $656 million. However, the division lost $773 million due to higher credit costs related to deterioration in the home equity portfolio.

Kenneth D. Lewis, chairman and CEO, said in a statement that the outlook for the second quarter was weak, though there may be some pick up for the bank in the second half of the year.

On the plus side, BofA’s total retail sales increased 10 percent to 13 million products, driven by strong growth in checking and savings, debit and online banking.