Bank of America Expects Higher Losses on Home Equity (Update4)
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3n_42oiZuyM
By David Mildenberg
May 13 (Bloomberg) -- Bank of America Corp., the nation's biggest consumer bank, said losses on home-equity loans will be even worse than predicted three weeks ago, adding to evidence that more consumers are falling behind on debts.
More customers are under financial stress and using credit cards to pay for necessities, said Liam McGee, president of the consumer and small business division, at an investor conference today in New York. Losses on the bank's $118 billion in loans linked to home values may top 2.5 percent, higher than the 2 percent to 2.5 percent projected last month. He didn't specify a time frame.
Credit-card customers are cutting back on retail, travel and entertainment purchases, said McGee, whose company is the nation's largest credit-card issuer and ranks No. 1 by deposits. That backs up economists and bankers who say the U.S. may be teetering near a recession as consumers struggle with job losses and gasoline prices of more than $4 a gallon.
McGee said Bank of America expects the economy, measured by real gross domestic product, will shrink in the second quarter. The bank had $184 billion of credit card debt outstanding at the end of the first quarter and about a 20 percent market share.
Credit and debit-card purchases for ``necessary'' items, including fuel, food and utilities, grew by 13 percent in the first quarter, while spending for retail, travel and entertainment increased 0.5 percent, the bank said today.
Mistakes Were Made
Those results parallel trends at MasterCard Inc., the world's second-biggest credit-card network, where Chief Executive Officer Robert Selander said in March that U.S. consumers were spending less on luxury items and more on gasoline and food.
Home price declines are worst in parts of California, Florida, Arizona, Nevada and Washington D.C., McGee said.
Losses from small-business lending are also increasing, the bank said.
``We made some mistakes in 2005 and 2006 in how we grew this portfolio,'' and the bank has since tightened lending standards, he said.
McGee's comments prompted Merrill Lynch & Co. to cut its estimate for Bank of America's earnings per share for 2008 by 9 percent to $2.50.
``We are still forecasting a 30 percent dividend cut in the third quarter,'' analyst Edward Najarian wrote in a report today, adding that a larger cut is possible. He rates the bank at ``sell.''
While McGee didn't project the bank's revised loss rate on home-equity loans, Najarian said he expects the ratio to reach 2.85 percent this year and 3 percent in 2009.
Countrywide Status
The bank's $4 billion purchase of Countrywide Financial Corp., the largest U.S. home lender, remains ``on track'' to be completed in the third quarter, McGee said. Bank of America expected ``bumps on the road'' during the transaction, he said.
Bank of America continues to ``look hard at Countrywide's earnings, assets and cash flow,'' McGee said. That commentary ``could be an indication that it was not ruling out a change in the offer price,'' CreditSights analyst David Hendler said in a report today.
Bank of America declined 64 cents, or 1.7 percent, to $36.80 at 2:54 p.m. in New York Stock Exchange trading. The stock has fallen 11 percent this year.
To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net
Last Updated: May 13, 2008 17:01 EDT
|
Thread abonnieren
