October 6, 2008 – 5:48 pm

Bank of America had its own portfolio of distressed assets before the FED-induced force feeding of Countrywide’s subprime-infested loan basket. The carrot and stick must have been humongous because that acquisition is being regurgitated in chunks. Bank of America puked big time on its fiscal Q3 2008 earnings report, and every action taken by the bank screams they’re gagging on this.

Bank of America fell 20 percent in New York after chopping its dividend in half and offering $10 billion of new stock to brace itself for an extended recession.

Bank of America slid $6.37 to $25.85 at 2:41 p.m. in New York Stock Exchange composite trading. The Charlotte, North Carolina-based company said late yesterday that third-quarter profit dropped 68 percent. That was worse than analysts expected, and the bank cut its quarterly payout to 32 cents a share.

That’s not a typo, the shares fell 20% on a profit dive of 68%, and it gets worse from there.

Chief Executive Officer Kenneth Lewis lied in July when he said the bank would neither cut its dividend nor raise capital. Now we see that BoA had to both because

the U.S. economy slowed in the past 45 days, with little prospect for immediate improvement. Troubled assets rose 37 percent in three months,…

Slowed in the past 45 days? Is he kidding us?  Oh, wait. There’s more:

“The recession is going to be a little deeper than we thought,” Lewis said on a conference call. “It’s going to take some more time and some more pain.”

Ya think? We don’t all sit on the stupid bench, Ken.

The share sale was widely expected, said Nancy Bush, an independent bank analyst in Annandale, New Jersey.

“With Merrill and Countrywide on the plate, and whatever else is coming down the highway, I’m surprised they aren’t raising more capital,” she said.

We’re surprised they aren’t dead, but that they aren’t raising more capital comes as no surprise to us. They can’t raise any more, Nancy. Who wants a debt-leveraged bank with a CEO who thinks the economy just slowed in the past 45 days?

Bank of America Corp has received orders for about two-thirds of the $10 billion of shares it is looking to sell, and plans to price the transaction after the market’s close on Tuesday, according to two investors that spoke to the bank.

That means the glass is 1/3 empty and filling only at a trickle. In the bubble days, they could raise that capital in the after hours session alone. If they still think they are going to flip a profit on Countrywide this year, then someone over there needs their head examined. We all know that the deterioration in credit markets will only worsen; all the kings men and horses can only continue adding liquidity, but solvency is the problem. Bank of America just spent $52.5B to load up on two of the market’s most decidedly insolvent institutions: Countrywide and Merrill Lynch. In preparation, Bank of America increased it’s loan loss provisions by nearly the price tag of the countrywide acquisition alone:

The company added almost $2 billion to the allowance for loan and lease losses during the quarter through provision. The additions were mainly for consumer loans, including the unsecured consumer lending, credit card and residential mortgage portfolios. The current coverage ratios and amounts shown below include the addition of Countrywide.

Provision for credit losses was $6.45 billion, up from $5.83 billion in the second quarter and from $2.03 billion in the third quarter of 2007.

Net charge-offs were $4.36 billion, or 1.84 percent of total average loans and leases compared with $3.62 billion, or 1.67 percent, in the second quarter and $1.57 billion, or 0.80 percent, in the third quarter of 2007.

Bank of America is quick to point out the increase in revenue brought about by Countrywide and the soon-to-be-added $1 trillion in assets from Merrill Lynch. But revenue and assets are only half the equation; losses and liabilities are the other, and slashing the dividend while increasing of loan loss provisions says all you need to know. 

The outlook for the bank is this:  they are preparing for darker days ahead as the credit crunch poisons the veins of the economy. The best chance for the bank to survive is to attain “Too Big to Fail Status.” The golden ticket lies in Fed promises and offers that are “too good too refuse.” That makes the economic landscape a bit more tidy, but not one bit more solvent. 


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