Bank of America profit falls 32 pct, losses mount

By Jonathan Stempel

NEW YORK (Reuters) - Bank of America Corp (BAC.N), the No. 2 U.S. bank, posted a much larger-than-expected 32 percent drop in quarterly profit on Thursday, hurt by mounting credit losses and dismal investment banking results.

Third-quarter net income fell to $3.7 billion, or 82 cents per share, from $5.42 billion, or $1.18, a year earlier.

Excluding items, profit was 84 cents per share, according to Reuters Estimates. Analysts expected $1.06. Losses from bad loans, trading and write-downs exceeded $3.7 billion. Profit from consumer banking, its largest business, fell 16 percent.

"We should have done better," Chief Executive Kenneth Lewis said on a conference call.

The decline was the latest in a series of disappointing bank results and dampened confidence about the health of U.S. consumers and the economy. Bond prices rose, and the dollar set a record low against the euro. Expectations rose that the Federal Reserve would cut interest rates this month.

"We knew the credit situation was going to be bad, but this was worse than expected," said Michael Mullaney, who helps invest $10 billion at Fiduciary Trust Co in Boston.

"What causes us concern is the increase in reserves doesn't appear aggressive, and the bank may need to reserve more in the future, which hits earnings," he added. "The real surprise was investment banking, where revenue plunged."

Shares of Bank of America closed down $1.18, or 2.4 percent, at $48.85 on the New York Stock Exchange. The 24-member Philadelphia KBW Bank Index .BKX fell 1 percent.

"HORRIBLE" TRADING RESULTS

Corporate and investment banking profit tumbled 93 percent to $100 million from $1.43 billion as revenue sank 44 percent.

Results were hurt by a $247 million write-down for leveraged and other loans, and a $527 million loss from structured products, including mortgages.

The overall trading loss was $1.46 billion, which Goldman Sachs & Co analyst Lori Appelbaum termed "horrible." Trading profit was $731 million a year earlier.

"What I can't say is that we stay the course," Lewis said. "I've had all of the fun I can stand in investment banking at the moment." He called the probability of changes in and elimination of some businesses and infrastructure "very high."

The corporate and investment bank employs more than 20,000 people, the bank said.

In an interview, Chief Financial Officer Joe Price declined to discuss possible staff cuts. He said any changes in the unit would likely be set by January.