Bank of America suffers near debt experience
Bank of America Corp., the bank that bought Countrywide Financial Corp., halved its dividend and plans to sell $10 billion in common shares after third-quarter profit fell 68 percent. The stock declined in late trading.
Profit dropped to $1.18 billion, or 15 cents a share, in the quarter ended Sept. 30, from $3.7 billion, or 82 cents, in the same period last year, the Charlotte, North Carolina-based company said in a statement.
Chief Executive Officer Kenneth Lewis took advantage of the financial industry's disarray to buy Countrywide, the largest U.S. home lender, and last month agreed to buy Merrill Lynch & Co., the world's largest securities brokerage, for $50 billion. Lewis said the outlook for the economy has darkened.
"We've seen in the last 45 days things worsening in the economy and a view that the recession is going to be a little deeper than we thought," Lewis said today on a conference call. "It's going to take some more time and some more pain."
The share offering has already started, according to a separate statement, with the bank and Merrill Lynch managing the sale.
Raising capital through share sales is important for the bank to achieve a Tier 1 capital ratio of about 8 percent given the weak economy, Lewis said. The bank ended the quarter with a 7.5 percent ratio with the ratio expected to reach 8.3 percent after the share sales.
Tier 1 capital is a measurement of a bank's ability to absorb loan losses. Banks with ratios of more than 6 percent are considered "well-capitalized." Merrill Lynch has also been battered by the global credit crunch, suffering about $52 billion in credit losses and writedowns.
Bank of America plans to pay a 32-cent quarterly dividend in December, compared with 64 cents previously, with the money saved adding more than $1.4 billion to capital each quarter.