Bank of America says market "dislocations" hurt Q4

By Jonathan Stempel

NEW YORK (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. bank, on Friday said "significant dislocations" in the debt capital markets, including those related to mortgages, will hurt fourth-quarter results.

In its quarterly report filed with the U.S. Securities and Exchange Commission, the bank did not estimate the size of the impact, or the amount of time it will take for markets to return to normal.

Capital markets have tightened since July, leading to a sharp reduction or elimination of investor demand for a variety of so-called collateralized debt obligations, including many tied to subprime mortgages and many once thought safe.

"We expect these significant dislocations in the CDO market to continue," Bank of America said. "We anticipate that these developments will adversely impact our results during the fourth quarter."

Bank of America said that as of September 30, it had $12.8 million of net exposure related to CDOs, including $9.8 billion tied to subprime mortgages, which go to people with poor credit.

It said it also had $2.4 billion of CDO exposure through structuring, warehousing and trading activities, including $1.9 billion backed by subprime mortgages.

Last month, Bank of America said a $1.46 billion trading loss led to a 93 percent reduction in third-quarter corporate and investment banking profit, and a 32 percent drop in overall profit to $3.7 billion.

Chief Executive Kenneth Lewis later announced the elimination of 3,000 jobs, including several hundred in corporate and investment banking. He also began a review of the corporate and investment banking unit to consider further cutbacks.