Bank of America reported today (July 17) that profit in the second quarter slipped slightly but exceeded analysts’ expectations — yet mounting credit woes may dampen that superficially good news, according to AOL Daily Finance.
Net income of Bank of America fell 6% to $3.2 billion, after removing the effect of paying some $805 million in dividends on preferred stock, the lion’s share of which was held by the U.S. government. That’s compared with a $3.4 billion profit a year ago.
Income from retail banking and wealth management fell compared with a year ago, and B of A’s credit card business swung to a massive loss. But like Goldman Sachs and JPMorgan Chase earlier this week, a surge in revenue from investment banking fees and the trading desk helped Bank of America post a profit.
Meanwhile, more of the company’s borrowers fell behind on payments. Bank of America said it had $31 billion in non-performing assets on its books at the end of the second quarter, an increase of nearly 69% over last year. The percentage of loans charged off as uncollectable also surged, from 1.13% a year ago to 3.31% now.
To cushion future credit losses, Bank of America set aside $4.7 billion in the quarter, it said.
“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,” said CEO Ken Lewis.
Bank of America is under intense government scrutiny. Regulators’ stress tests, completed during the quarter, found it needed to raise an additional $33.9 billion in capital to withstand the recession. And, as The Wall Street Journal reported, it has been operating under a secret agreement with Washington that mandated an overhaul of its board, among other things.