Bank of America CEO: Recession "feel" may last year
NEW YORK (Reuters) - Bank of America Corp (BAC.N) Chief Executive Kenneth Lewis has offered a gloomy outlook for U.S. consumer and business sentiment, saying some people may feel as if the economy is in recession for the next year.
"I think we'll start a gradual recovery toward the middle of next year," Lewis, who heads the nation's largest retail bank, said in a speech on Wednesday in Los Angeles. "Until then, depending on what sector of the economy you're in, it will feel slow and may feel like a recession."
Lewis nevertheless said poor economic sentiment would not weigh on operations so much that the Charlotte, North Carolina- based bank need consider raising dilutive capital or cutting its dividend, as have many smaller rivals.
"I can only say what I've said in the past -- we have no reason to cut the dividend and raise any capital," he said in response to an audience question.
The bank's dividend yield is above 11 percent.
Bank of America shares closed on Wednesday down $1.48, or 6.29 percent, at $22.06 amid a broad decline in banking shares. They rose to $22.80 in after-hours trading after Lewis discussed the bank's capital needs.
Lewis spoke near the former home of Countrywide Financial Corp, which was the largest U.S. mortgage lender before Bank of America acquired it last week in a $2.5 billion rescue.
Lewis said borrowers will remain cautious, pinched by $4 a gallon gasoline, soaring food costs, and plunging housing prices, including declines of nearly 30 percent in California.
In the first quarter the economy grew at a 1 percent annual rate. Lewis expects similarly weak second-quarter growth.
On Tuesday, the chief executive of another major U.S. retail bank, JPMorgan Chase & Co's (JPM.N) Jamie Dimon, said market conditions "could actually get worse."
Meanwhile, billionaire Warren Buffett has said several times this year the economy is in recession, which he defined as when people and businesses do less well than several months earlier.
Lewis said Bank of America expects to work out at least $40 billion in home loans in the next two years to help some 265,000 borrowers avoid foreclosure.
Analysts expect the bank to post a fourth straight decline in quarterly earnings on July 21 as credit losses rise.
Analysts look for Bank of America to report second-quarter profit, excluding items, of about $2.9 billion, or 64 cents per share, Reuters Estimates said. Profit on that basis was $1.30 per share a year earlier.
GREED AND FEAR
Lewis is now focused on integrating Countrywide.
The Calabasas, California-based lender last year made one in six U.S. home loans, but has been widely faulted for feeding the nation's housing bubble and crash by foisting risky home loans on borrowers in the pursuit of profit.
IndyMac Bancorp Inc IMB.N, a big independent mortgage lender created by Countrywide, said this week it would quit its main lending business, pinning its survival on offering "reverse" mortgages and running a retail savings and loan.
Lewis blamed the bubble on lenders' willingness to offer cheap loans with little documentation and Wall Street's desire to bundle risky loans for yield-starved investors as the Federal Reserve drove its benchmark loan rate down.
"We created a housing boom that was not based on economic fundamentals," Lewis said. "Greed and fear got out of balance, to put it mildly."
Bank of America has not offered subprime home loans since 2001 and said it has stopped offering most nontraditional mortgage products.
It nevertheless remains exposed to potential problems as the nation's largest consumer and construction lender and by some measures the largest credit card issuer.
Some analysts expect it to face $10 billion or more of credit and litigation losses tied to Countrywide.
Yet, referring to Countrywide, Lewis also said that "after considerable analysis and due diligence, we also believe that the business we've acquired is a very good one."
(Additional reporting by Jennifer Martinez in Los Angeles; Editing by Jeffrey Benkoe and Andre Grenon)
