Credit woes hit BoA; Q2 profit slides 5.5%

Financial services major Bank of America saw its second-quarter profit skid 5.5 per cent to $3.22 billion, primarily due to rising credit woes.

However, Bank of America, one of the worst hit in the ongoing financial turmoil, recorded a 60 per cent surge in revenues to $32.77 billion for the three months ended June 30, 2009.

In a statement the bank today said it has raked in profit to the tune of $3.22 billion for the second quarter, a fall of 5.6 per cent against the same period a year ago. In the comparable period, the same stood at $3.41 billion.

During the second quarter, the entity continued to incur high credit costs and witnessed significant negative credit valuation adjustments on certain liabilities, including those related to Merrill Lynch.

The Bank of America's result comes after rivals Goldman Sachs and JPMorgan came up with stellar second quarter performance.

The bank noted that credit quality deteriorated further as the economic environment weakened.

"Consumers remained under significant stress as unemployment and underemployment increased and individuals spent longer periods without work. These conditions led to higher losses in almost all consumer portfolios compared with the prior quarter," it said.

"Results were driven by continued strong revenue performance in the wholesale capital markets businesses as well as in home loans, complemented by the previously announced gains on the sale of China Construction Bank (CCB) shares and the sale of the company's merchant processing business to a joint venture," the statement said.

The provision for credit losses stood at $13.4 billion in the second quarter while the non-performing assets were $31 billion compared with $25.6 billion at March 31, 2009, reflecting the continued deterioration in economic conditions.

"Having positive net income in an extremely challenging environment speaks to the diversity and strength of our business model as well as the extraordinary effort put forth by all of our associates," Bank of America's CEO and President Kenneth D Lewis 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," Lewis said.

The US had directed the bank to raise $33.9 billion in additional capital, following the rigorous stress tests conducted on the country's 19 largest bank holding companies earlier this year.