Bloomberg News reports that Bank of America (NYSE: BAC) missed earnings expectations by 44%. Specifically, its first-quarter net income declined to $1.21 billion, or 23 cents a share, from $5.26 billion, or $1.16 a share in 2007. The 21 analysts surveyed by Bloomberg expected the bank to make 41 cents a share. The bank experienced a huge rate of late credit card payments in its $81 billion credit-card portfolio -- 5.8% compared with an industry average of 4.1%.
Bank of America's problem is its exposure to the housing market. Assuming 2% of its home-equity loans are uncollectible this year, the cost may be $2.3 billion according to a Fitch Ratings analyst. If the bad loans reach 5%, the damage could total $5.9 billion. Meanwhile, Bank of America is still on track to buy Countrywide Financial Corp (NYSE: CFC) which had $34 billion in home-equity loans at the end of 2007.
Both Bank of America and Countrywide have home-equity loans concentrated in the regions with the most foreclosure filings. California, Nevada, Arizona and Florida are the four states where housing prices are sliding faster than the national average -- ranking among the top 10 states with the most foreclosure filings in March.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
4-21-2008 @ 9:57AM
Harry said...
Another bank in trouble. What else is new?
4-21-2008 @ 10:00AM
Mike said...
Banks slowly dribble out ongoing problems. Problems will continue. Lots of bad decisions and greed...
7-15-2008 @ 1:58AM
Olivia France said...
I recently receive a letter in the mail from
Bank of America stating that they were reducing
my Home Equity line of credit reason unknown
the letter also stated that if I did not agree with
the changes' I should write a letter stating that
I do not wish to reduce the line of credit, I wrote
the letter, explaining that I did not wish to reduce
my credit line, Today I received another letter
from Bank of America stating that they are decreasing my line of credit anyway...
I then called the service center listed in the letter
the employee stated that the Bank was trying to
cover their lost; which has nothing to do with me
I have not been late or missed a single payment nor is there any derogatory statements on my credit report, It appears to be true, I contacted a broker who aquired information on several Banks' including Bank of America she stated that people were pulling their Home Equity credit lines in cash out B of A along with their depoists' Is it true, is Bank of America going Bankrupt...... I also found out I am not the only person who received the letter ;The Broker stated she had several phone calls' from clients' that B of A is reducing Home Equity lines of credit of previously opened line of credit accounts' ,my line of credit was in 2007 so the contract you have with B of A means nothing and they are in control of you.... beware of B of A I live in Nevada and I also have a home in Florida, I will be closing my account in B of A very soon, I suggest others' do too.
Nevada