I wonder if BOA is the next victim.

Bank of America profit falls 68%, firm cuts dividends
Last update: 5:22 p.m. EDT Oct. 6, 2008Comments: 66

The headline of a previous version of this story gave the incorrect percentage drop in Bank of America's net income. The correct percentage is 68%.

NEW YORK (MarketWatch) -- Bank of America on Monday said its third-quarter profit fell by more than two-thirds on the back of rising charges for soured credit market investments and higher credit card charge-offs.

BAC 32.22, -2.26, -6.5%) also said it was cutting its dividend in half, to 32 cents a share, and will sell up to $10 billion in common stock to beef up its balance sheet.

Bank of America said it earned $1.18 billion, or 15 cents a share, a 68% fall from the $3.70 billion, or 82 cents a share, it earned a year ago.
Analysts polled by FactSet Research had expected the company to report earnings of 61 cents a share.

Bank of America said the dividend cut should preserve about $1.4 billion a quarter in much needed capital.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth D. Lewis, chairman and chief executive officer. "We believe it is prudent to raise capital to very substantial levels in this uncertain environment."

The dividend cut highlights the seriousness of the capital situation in the banking sector, because Lewis has repeatedly stressed that the firm would not cut the dividend and had enough capital to operate with the 64 cents-a-share payout in place.

However, the increased pressure on the credit markets since Lehman Brothers Holdings Inc. filed bankruptcy last month, along with added capital required associated with its purchases of Countrywide Financial and Merrill Lynch, appear to have forced Lewis' hand.

Lewis acknowledged the increasingly tight credit markets and added that in order to maintain their targeted Tier 1 capital ratio of 8%, it needed to raise money now.

"We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago," Lewis said. But now he said they need to raise the funds, "given the recessionary conditions and outlook for still weaker economic performance, which we expect to drive higher credit losses and depress earnings."

Credit card unit takes a hit
Another warning sign also emerged in the company's third-quarter earnings report in the form of credit card write-offs.

The bank said credit card net charge-offs rose to $1.24 billion, representing a net charge off rate of 6.14%, while credit card managed net credit losses rose to $3 billion, representing a loss rate of 6.4% percent.

"The consumer credit card business experienced a decrease in purchase volumes, slowing repayments and increased delinquencies during the quarter," the company said.

As housing prices fell dramatically, investors who could no longer access credit through home equity loans began increasing their drawdown of revolving credit card debt. Now, as unemployment rises and the economy worsens, defaults are rising in credit card land.

In other segments, investment banking income rose 22% from the previous year to $474 million.

Capital markets and advisory services businesses took a $952 million loss in CDO-related charges. Leveraged loan and commercial mortgage related write-downs took a $327 million bite out of results and the firm lost an additional $190 million from its commitment to buy back auction-rate securities from clients.

Equity investment income results were negatively impacted by write-downs totaling $320 million on the preferred stock of Fannie Mae and Freddie Mac, the firm said.

Bank of America's global wealth and investment management revenue was affected by $630 million in support for cash funds and $123 million in losses on a commitment to buy back auction-rate securities from clients, it said.

The company added almost $2 billion to its allowance for loan losses, which it said were mainly for consumer loans, including the unsecured consumer lending, credit card and residential mortgage portfolios.
"Higher levels of bankruptcies are occurring and delinquencies and losses have increased in all consumer portfolios," the firm said in appraising the situation.

http://tinyurl.com/3twx2n