Bank of America net falls on credit losses

By Jonathan Stempel

NEW YORK (Reuters) - Bank of America Corp (BAC.N), the largest U.S. retail bank, posted a 77 percent decline in quarterly profit on Monday, as a growing number of consumers and real estate developers failed to repay loans.

Profit dropped for a third straight quarter and slid more than analysts expected, dragged down by what Chief Executive Kenneth Lewis called a "litany of negative issues," including more than $5 billion of write-downs and credit-related costs.

Bank of America said the housing market will remain weak all year, as credit problems once concentrated there spread into other areas such as credit cards.

The bank also quintupled the amount it set aside for bad loans to $6.01 billion and said the economy might grow little or shrink this quarter.

"It would be too early to strike up the band and sing 'Happy Days Are Here Again,'" Chief Executive Kenneth Lewis said on a conference call.

First-quarter net income fell to $1.21 billion, or 23 cents per share, from $5.26 billion, or $1.16, a year earlier. Results included a $776 million pre-tax gain from credit card network Visa Inc's (V.N) initial public offering last month.

Excluding merger costs, profit was 26 cents per share, below the average analyst forecast of 45 cents, according to Reuters Estimates. Net revenue dropped 6 percent to $17 billion, but topped the average $16.33 billion projection.

The Charlotte, North Carolina-based bank, the nation's second-largest by assets, still expects to complete its roughly $4.1 billion purchase of Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender, in the third quarter.

In midday trading, Bank of America shares were down 95 cents, or 2.5 percent, at $37.61.

Results followed weak earnings reported last week by rivals such as Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N) and Wachovia Corp WB.N and Washington Mutual Inc WM.N.

BAD LOANS SOAR

The $6.01 billion set aside for bad loans stemmed in significant part from credit costs in home equity, small business and home builder portfolios.

Bank of America added $3.29 billion to its reserves for credit losses. Net charge-offs nearly doubled to $2.72 billion and nonperforming assets nearly quadrupled to $7.83 billion.

"Credit was a lot worse than expected," wrote Jeff Harte, an analyst at Sandler O'Neill & Partners LP. "Management added meaningfully to reserves, but this may be a necessary evil."

The bank said credit card losses in particular were rising in areas hit hard by housing troubles, including Arizona, California, Florida and Nevada.