Write-downs hurt Bank of America

Bank of America has not escaped the credit crisis

Bank of America has reported a 77% drop in profits in the first three months of 2008, hit by trading losses and a $6bn (£3bn) write-down to cover bad loans.

The Wall Street giant said net profits fell to $1.2bn in the quarter to March, from $5.26bn the year before.

Bank of America has been caught up in the global credit crisis, rooted in the collapse of US sub-prime home loans.

Banks invested in this area were hit, but there are signs that defaults on loans are spreading beyond mortgages.

"Despite revenue growth in most of our businesses, these results clearly did not meet our expectations," said Bank of America chairman and chief executive Kenneth Lewis.

"The weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance," he added.

Credit pain

Charlotte-based Bank of America said trading losses accounted for $1.31bn of the profit fall, much smaller than the $5.14bn trading loss revealed in the last three months of 2007.

Less encouraging, the bank, which is less geographically diversified than some of its Wall Street rivals, expects a growing number of house buyers, small businesses and house builders to default on their loans and it has set aside $6bn to cover this.

This is $4.78bn more than a year ago and reflects its deep exposure to the US mortgage market after its January purchase of the nation's biggest mortgage lender Countrywide.

Countrywide was rumoured to be close to bankruptcy after a decline in new business and record foreclosures.

Mr Lewis gave a cautious outlook, predicting US economic growth to be "minimal at best in the second quarter with a slight pickup in the second half of the year".

"We remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices," he said.

Wider market

Bank of America's earnings report was still better than rivals Citigroup and Merrill Lynch, which unveiled net losses last week and announced aggressive job cuts to cut costs.

Further bad news came from Wachovia, the fourth-largest bank in the US, which last week reported a surprise loss of $393m for its first quarter.

The International Monetary Fund has forecast that potential losses from investments linked to the precipitous decline in the US housing market as well as sour loans related to commercial property, consumer credit, and company debt could extend to almost $1 trillion.