Bank of America's (BoA) chief executive admitted disappointment on October 18 as the banking giant's third quarter profit slowed sharply to 3.7 billion dollars largely due to swelling investment losses.
The Charlotte, North Carolina-based financial titan, America's second-largest banking group, said its latest quarterly earnings moderated a hefty 32 percent from 5.4 billion dollars a year earlier.
Bank of America's profit fell short of Wall Street expectations, but its coffers bulged more than arch rival Citigroup - the country's biggest banking firm - which disclosed a net profit of 2.4 billion dollars for the quarter on October 15.
"While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third quarter performance," Bank of America chairman and chief executive officer Kenneth Lewis said.
The bank unveiled earnings per share of 82 cents. Wall Street had anticipated earnings per share of 1.05 dollars. Revenues moderated 12 percent to 16.3 billion dollars during the July-September period from the third quarter of 2006.
Despite reaping a profit of well over three billion dollars, Bank of America's earnings potential was hit hard by a downturn in investment banking business, losses from mortgage-backed securities and other investment losses tied to the ailing credit markets.
The financial giant said "unprecedented market disruptions" stoked a 93-percent decline in net income at its Global Corporate and Investment Banking division. The unit's income tumbled to 100 million dollars compared with 1.43 billion dollars a year ago.
Bank of America, like many of its peers, has suffered from its exposure to the distressed trillion-dollar US mortgage market and credit markets. It reported a net revenue loss of 527 million dollars related to bets it waged on mortgage securities, including commercial mortgages, and other risky securities.
It said it had also been forced to write-down 247 million dollars linked to loans and commitments tied to take-overs and acquisitions. US stock markets fell heavily in August as several big financial firms revealed losses tied to mortgage-backed securities, which in turn triggered a credit crunch.
The Federal Reserve injected tens of billions of dollars into the financial system to keep credit flowing, but the credit squeeze has put a brake on corporate takeovers and crimped demand for investment banking services.
Investor appetite for mortgage-backed securities has been hurt by the US housing downturn which shows few signs of improving anytime soon. Compounding its woes, the bank's capital markets and advisory services division sustained a net loss of 717 million dollars.
Bank of America, which has a market worth of 213 billion dollars, also indicated that credit losses could accelerate as it raised its provision for credit losses to 2.03 billion dollars, up from just over one billion dollars in the same period last year. On a more upbeat note, profits from the bank's global wealth management operations surged 17 percent to 599 million dollars.
Its global wealth management business was boosted by the acquisition of US Trust this year as Bank of America seeks to woo rich clients. Bank of America has expanded aggressively in recent years, swallowing other firms including FleetBoston Financial and the MBNA credit card firm. The bank's shares closed down 2.3 percent at 48.85 dollars.