Bank of America profit falls 41 pct but tops views

By Jonathan Stempel

NEW YORK (Reuters) - Bank of America Corp (BAC.N) reported quarterly profit on Monday that fell less than expected on record revenue, boosting the shares of the largest U.S. retail bank and mortgage lender, despite a surge in bad loans.

The bank became the fourth of the nation's five largest to top quarterly earnings forecasts, joining Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N).

Profit at Bank of America fell 41 percent, the fourth straight quarterly decline, as the bank more than tripled its reserve for loan losses because of falling home prices and a weak economy.

Offsetting this was a higher lending margin, near-record investment banking income and a $357 million trading profit, following $8.55 billion of trading losses in the prior three quarters.

"It suggests the credit crisis isn't as bad as people thought" for lenders, said Steve Roukis, managing director at Matrix Asset Advisors Inc in New York, which invests $1.4 billion. "A week ago there was tremendous fear about systematic risk to the system. There's definitely a floor here."

Second-quarter net income for Charlotte, North Carolina- based Bank of America fell to $3.41 billion, or 72 cents per share, from $5.76 billion, or $1.28, a year earlier.

Excluding merger costs, profit was 75 cents per share. On that basis, analysts expected 48 cents per share, according to Reuters Estimates. Revenue increased 4 percent to $20.32 billion, topping the average $18.26 billion forecast.

Bank of America also said its July 1 purchase of Countrywide Financial Corp, once the largest mortgage lenders, will add to profit in 2008, sooner than expected, and result in $900 million of cost savings, $230 million more than expected.

Countrywide lost $2.33 billion in the quarter, including about $3.7 billion of credit-related write-downs and losses, Bank of America said. About 7,500 jobs, or 3 percent, will be eliminated from the combined companies, the bank has said.

Bank of America set aside $5.83 billion for bad loans, up from $1.81 billion a year earlier, largely for home equity, residential mortgage and homebuilding exposure.

The provision was nearly as large as the first quarter's $6.01 billion. Net charge-offs more than doubled from a year earlier to $3.62 billion from $1.5 billion.

"NOT IN DENIAL" ABOUT CREDIT

Chief Executive Kenneth Lewis said on a conference call "we do not yet see the economy slipping into prolonged recession," but that "sluggishness" will persist through year end.

"We are not in denial," he said. "Credit losses are still going up."

He plans to maintain the bank's 64 cents per share quarterly dividend, dampening fears of a cut, but ending 30 straight years of increases.