CORRECTED-WRAPUP 2-Bank of America, Wachovia Profits Nearly Wipe

By Jonathan Stempel

NEW YORK (Reuters) - Bank of America Corp (BAC.N) and Wachovia Corp WB.N, the second- and fourth-largest U.S. banks, said on Tuesday quarterly profits were nearly wiped out by more than $10 billion of credit losses and write-downs.

Fourth-quarter earnings fell 95 percent at Bank of America and 98 percent at Wachovia, and missed analysts' forecasts.

"The environment is very tough, and we expect it to remain so for some months to come," Bank of America Chief Executive Kenneth Lewis said on a conference call. "We stay concerned about the level of domestic consumption and spending given the prolonged housing slump, subprime issues and higher fuel and food prices."

Bank earnings are falling as a global credit crunch leaves consumers unable to pay their bills, and banks with mounting losses on debt they own. Fears of a U.S. economic recession this week fueled a global sell-off in stocks and an emergency interest-rate cut by the Federal Reserve.

"It's going to take time for banks to clean up their problems," said Michael Mullaney, who helps invest $10 billion at Fiduciary Trust Co in Boston. "We hope we don't see further spillover from mortgages into other consumer lending, including credit cards and auto loans, and commercial properties."

Regional banks are also hurting. Profit fell 80 percent at Regions Financial Corp (RF.N), which operates in the Southeast, and a respective 42 percent and 83 percent at Ohio-based Fifth Third Bancorp (FITB.O) and KeyCorp (KEY.N). National City Corp NCC.N, another Ohio bank, posted a $333 million loss.

"You had massive disruptions in the capital markets, and that has absolutely persisted," National City Chief Executive Peter Raskind said in an interview. "The Fed can't make borrowers borrow and lenders lend."

Shares of Bank of America and Wachovia rose after Lewis and Wachovia Chief Executive Ken Thompson said they don't expect to cut their dividends. In afternoon trading, Bank of America was up $1.14 at $37.11, while Wachovia rose $1.23 to $32.03.

BANK OF AMERICA

Charlotte, North Carolina-based Bank of America said quarterly net income fell to $268 million, or 5 cents per share, from $5.26 billion, or $1.16, a year earlier. Revenue fell 31 percent to $12.67 billion, the bank said.

Excluding merger costs, profit was 9 cents per share, Reuters Estimates said. Analysts on average expected profit of 19 cents per share on revenue of $13.26 billion. The corporate and investment banking unit fared worst, losing $2.76 billion.

"Credit quality is clearly broadly deteriorating," wrote Lori Appelbaum, an analyst at Goldman Sachs & Co.

A $5.28 billion write-down for complex securities known as collateralized debt obligations was the main reason for the profit shortfall, and led to $5.44 billion of trading losses.

Bank of America more than doubled the amount it set aside for credit losses, raising it $1.74 billion to $3.31 billion. It also incurred $800 million of losses and write-downs for losses in its money market mutual funds.

The bank made another bet on the U.S. consumer when it agreed this month to pay $4 billion for Countrywide Financial Corp CFC.N, the nation's largest mortgage lender. Analysts expect Countrywide to report a fourth-quarter loss on Jan 29.