August 26, 2009 – 4:26 pm

Bank of America continues to plod through the aftermath of the credit bubble burst like an old, overburdened pack mule. With red ink still dripping on the bridle, Bank of America pushed out a $3.2 billion second quarter profit, largely on the back of one time gains.

One-time items included a gain of $5.3 billion from the sale of a stake in China Construction Bank Corp., a $3.6 billion accounting charge related to the increased market value of structured notes acquired in the Merrill Lynch purchase and a $1.3 billion writedown of the value of corporate loans and securities.

Other one time gains include $1.38 billion from a sale of the merchant processing business. The gains came in a degrading credit atmosphere in both retail and wholesale.
The home loan and insurance unit lost $725 million, even as revenue tripled, on credit costs and expenses to help homeowners modify their loans. Card services swung to a $1.62 billion loss, from a $582 million gain a year ago, and corporate loans declined $7.8 billion as demand softened during the quarter. Bank of America also reported rising defaults on real-estate loans tied to retail and office properties, while assets no longer collecting interest rose to $30.98 billion from $25.6 billion on March 31. Debts the bank doesn’t expect to be repaid jumped 25 percent to $8.7 billion.
In the face of these rising defaults and deteriorating credit markets, the bank let the provision for credit losses remain at last quarter’s level of $13.38 billion. Anyone else see another bail-out in the bank’s future?
And the while the financial press tries to wax poetic on the Merrill Lynch acquisition, Bank of America continues to wane under the strain of its toxic assets.

Merrill’s acquisition “is going to work out,” said Bill Fitzpatrick, an equity analyst at Optique Capital Management, which manages $900 million, including Bank of America shares, in Racine, Washington. “That’s why they are profitable here in the second quarter.

Merrill’s acquisition is going to work out for who, besides Thain? Without the $45 billion from the taxpayer, Bank of America wouldn’t even be around, let alone profitable. Even under the Federal Reserve’s self-induced sleep test, Bank of America was required to raise $34 billion, but in a symbolic measure, the bank raised $38 billion.

Lewis, 62, said U.S. officials were underestimating the bank’s earnings power, and then raised more money than they demanded, ending the campaign with about $38 billion.

Now we see what Ken Lewis means by the bank’s earning power: cash raising. Since the bubble burst in July 2007, the bank has raised around $200 billion, making the extra $4 billion a piss poor symbol for the bank’s financial prowess. But at least now we see how confused Lewis really is.
Beyond the $36 billion cash raised, there is a $118 billion cash raised implicitly by the way of government guarantees from which Bank of America explicitly benefited by at least $4 billion.
Bank of America Corp. is trying to avoid paying billions of dollars in fees to U.S. taxpayers for guarantees against losses at Merrill Lynch & Co., saying the rescue agreement was never signed and the funding never used.
Regulators contend Bank of America owes at least part of a $4 billion fee it agreed to pay in January — even without a completed legal document — because the company benefited from implied U.S. backing on about $118 billion of Merrill Lynch assets, such as mortgage-backed bonds, people familiar with the matter said. The Charlotte, North Carolina-based bank says it owes the Treasury nothing, according to the people, who declined to be identified because the negotiations are confidential.
Someone needs to remind the people, who declined to be identified because the negotiations are confidential, that the $118 billion bill is public.
Bank of America will be weighed down for years to come by the deal Lewis never wanted, even as Lewis himself will continue to defend it, caught in the twisted enigma of the scam. The $50 billion acquisition of Merrill Lynch was all bad for Bank of America, everyone knew it and everyone knew that Lewis knew it. But with the government strong-arming the deal, all that Lewis could say was “I want to keep my job.”

Secretary Paulson’s threat swayed Lewis. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, “that makes it simple. Let’s deescalate.” Lewis admits that Secretary Paulson’s threat changed his mind about invoking that MAC clause and terminating the deal.

It worked. Even among a board rattling shake-up, and though he lost his chairman’s title, Lewis held on to his job as CEO. This is a spectacular achievement for a man who so colossally misguided his company. For Lewis, even more difficult than keeping his job will be keeping Bank of America alive in the aftermath of a world-class credit bubble where the only guaranteed income comes from the taxpayer.

“Our goals during this difficult time have been to enhance the strength of our balance sheet and capital position and to continue to improve our earning power while dealing with the credit issues facing our industry due to the recession,” president and CEO Kenneth Lewis said in a release. “Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010.”

So, Ken Lewis, who did not want the burden of Countrywide Financial and Merrill Lynch until they were force fed to him, worries about the dead weight of his bank resting on the shoulders of an already overburdened taxpayer. Keep in mind that the taxpayer will be paying the bonuses of failed Merrill Lynch executives dressed up in drag by Lewis and relabeled as highly sought-after talent.

Bailed-out Bank of America has been doling out millions in bonuses in an effort to lure talent and keep investment bankers who management views as vital, sources tell The Post.

That’d be the same talent that did not see the greatest credit bubble in history, even as it blew up in their face.
Beyond the accounting gimmicks, one off gains and cost cutting, the conundrum for any big bank is to generate profits in the vacuum of the credit implosion. Now the biggest bank of all has solved it by tethering the fate and fortune of every American to it like a rock thrown off a canyon wall.
As the credit markets and economy worsen, Bank of America will shift increasingly more of its burden onto the taxpayer, who is already defaulting on a mortgage and credit cards, facing higher unemployment and homelessness. How long can Bank of America stay in business like that? Until it breaks the taxpayer’s back.