UPDATE 2-Bank of America CEO sees end of bank deleveraging

(Adds additional comments from press conference, byline)

By James B. Kelleher

CHICAGO, Nov 20 (Reuters) - Bank of America Corp (BAC.N) Chief Executive Kenneth Lewis said on Thursday he is "optimistic" the financial system is near the end of a painful deleveraging process that has throttled credit markets and dethroned some of Wall Street's mightiest names.

But Lewis warned 2009 would be another "tough year" for the finance industry with credit costs unchanged, if not higher, than in 2008, and rising charge-offs in credit cards as the economy worsens and unemployment climbs.

Banks have been shoring up balance sheets by raising capital and writing down toxic debt securities since the credit crisis began over a year ago.

In a speech to the Executives' Club of Chicago and a subsequent press conference, Lewis said Bank of America believes the process is near an end.

"We do think we're getting close," he said. "Our best guess is sometime next year," he added.

Asked if the unnerving, seemingly unending series of multibillion-dollar writedowns by banks was at an end, however, Lewis said, "I could answer that question with great confidence today and feel like a fool tomorrow. We'll just have to let it play out."

He declined to predict how many jobs the sector might shed before the rebound begins but warned the layoffs weren't over.

"I can't predict employment levels but I can predict it's going to be a tough year," he said.

Lewis said "the vast majority" of any job cuts at Bank of America, which has purchased a number of one-time rivals, including Countrywide Financial Corp, would "be around" the integration of Merrill Lynch & Co MER.N.

Looking further down the road, he suggested the days of exorbitant Wall Street salaries might be coming to an end as the industry becomes more conservative, subject to more regulatory oversight, and focused more on simpler products.

"When you delever, and when you have less sophisticated high-margin products, like highly structured (investment) vehicles, then it's going to be a new day" for compensation, he said.

He also predicted the banking universe would assume more of a barbell shape, with a handful of large, diversified, global firms on one end of the industry and thousands of small, local community banks on the other.

He predicted consolidation would accelerate over the next year or so.

Asked what kinds of banks would disappear, he said: "I don't know what size National City NCC.N was, but that's about the size that I'm talking about."