DETROIT Bank of America Corp (BAC.N) Chief
Executive Kenneth Lewis said on Tuesday the U.S. economy will
get worse before it improves, and forecast record losses for
the U.S. credit card industry.
"We, as an industry, may end up with possibly the highest
credit card losses the industry has ever experienced," Lewis
Lewis said that in light of the ongoing financial crisis he
saw a good chance of another half a percentage point rate cut
at the next Federal Reserve meeting scheduled for Dec. 15-16.
Speaking to reporters, Lewis also said the largest U.S.
bank will have "fairly significant" job eliminations resulting
from its takeover of Merrill Lynch & Co Inc MER.N in
Bank of America, which has worried some investors over the
past year with big-ticket takeovers of Merrill and mortgage
lender Countrywide Financial Corp, is unlikely to make new
acquisitions over the next few years as it absorbs the
already-acquired companies, Lewis said.
Lewis spoke in Detroit, which bears the scars of many years
of neglect in its housing stock, a blight that only worsened by
the economic recession and deepening plight sweeping through
the Big Three automakers.
Lewis spoke to reporters after delivering a speech to local
business owners and students on the impact of the financial
crisis on home ownership in the United States.
Over the last eight years, the state of Michigan has lost
300,000 manufacturing jobs, many of those in the declining U.S.
The chief executives of General Motors Corp (GM.N), Ford
Motor Co (F.N) and Chrysler LLC [CBS.UL] took their case for a
$25 billion bailout to the U.S. Congress Tuesday. They said a
financial rescue is imperative if the industry is to survive
the escalating liquidity crisis. [nN18548335].
Lewis said that he would support a bailout for the U.S.
auto industry if Americans back it, but added that not all of
Detroit's three automakers should survive. [nN18277394]
"The first thing would be that they (the U.S. automakers)
acknowledge that there is one too many auto companies and that
consolidation needs to take place," Lewis said, adding any
bailout package must be based on viability and sustainability
to make them competitive with overseas rivals.
Bank of America, the country's largest mortgage lender and
one of the biggest credit card issuers, cut its dividend in
half last month after rising credit losses contributed to a 68
percent decline in third-quarter profit.
The bank has already raised more than $22 billion in
capital this year and is getting $25 billion from the $700
federal bailout program.
Asked whether the financial industry should slash bonuses
and executive payouts in the wake of the bailout, Lewis said he
opposed the use of golden parachutes that protect only those at
the top even in the event of failure.
"Why would I, the highest paid individual in the whole
corporation, have a safety net which my associates don't?
That's inherently unfair," Lewis said.
Well over 100,000 jobs have been lost at the world's
largest banks and brokerages since the global credit crisis
Citigroup Inc (C.N) revealed on Monday it is cutting 52,000
jobs by early next year as the No. 2 U.S. bank combats mounting
debt losses and sagging economies worldwide.
Lewis said the U.S. economy is clearly in a recession and
forecast no recovery until the housing market stabilizes around
the middle of 2009. [nN18218885]
"I think the economy will get worse before it gets better.
I wouldn't be surprised if we see another half a percent rate
cut at the next Fed meeting," he said.
The deepening recession has bolstered market expectations
the Fed would cut benchmark U.S. interest rates by a
half-percentage point to 0.5 percent next month.
The Fed has slashed interest rates 4.25 percentage points
since September 2007 to 1 percent to counter the credit crisis
and support the faltering economy.
In wide-ranging remarks about the economy, Lewis blamed the
mortgage crisis on government subsidies and excessively low
interest rates, saying the industry needs a "realistic" view of
the ability of customers to handle rising payments and rethink
its view on short-term, low-interest "teaser" rates.
Mortgage lenders should also retain a portion of originated
loans on their own balance sheets and keep servicing
responsibilities to the extent possible, he added.
Bank of America became the nation's largest mortgage lender
and servicer when it paid $2.5 billion for Countrywide
Financial Corp in July.
(Editing by Jeffrey Benkoe)