BOSTON (Reuters) - Bank of America Corp (BAC.N) Chief Executive Kenneth Lewis said on Thursday the largest U.S. bank was profitable in January and February and should be able to ride out the recession without new help from the nation’s taxpayers.
He also said Bank of America will make money for all of 2009, after reporting the bank’s first quarterly loss in 17 years for the October-to-December period.
Investors have worried that mounting credit losses would make it hard for many lenders to turn a profit. Lewis said Bank of America could make $50 billion in 2009 before taxes, credit losses and writedowns, and would likely post a net profit, especially if businesses and consumers spend more. Early signs of recovery would likely come from housing, he said.
“I actually think the next six months is going to be, in a positive way, a gut-wrenching time,” Lewis told an audience at the Chief Executive Officers Club of Boston. “We’re going to start seeing signs of improvement and, at some point, you have to pull the trigger on that investment or that expansion.”
Analysts, on average, expected Bank of America to lose 3 cents per share in the first quarter and turn a profit of 60 cents per share in 2009, according to Reuters Estimates.
In afternoon trading, Bank of America shares soared $1.04, or 21 percent, at $5.97, although they remain well below their $14.08 level at the start of the year.
Lewis faces heavy pressure from investors to show that Bank of America can make it through the recession on its own, without being nationalized. Some critics have called for his removal in the wake of his rushed, and so far troubled, purchase of Merrill Lynch & Co on January 1. Bank of America shares were at $33.74 before the merger was announced last September 15.
In his speech to the CEO club, Lewis said it would be a “nightmare” for U.S. banks to be nationalized, wiping out shareholders and perhaps bondholders, and further damaging an economy that might begin to recover as soon as this year.
Lewis also said he is confident Charlotte, North Carolina-based Bank of America will pass a pending government “stress test” and will not need more taxpayer money.
It took $45 billion from the U.S. Treasury Department’s Troubled Asset Relief Program (TARP), including $20 billion in a January bailout to help absorb Merrill.
Lewis said he agreed with Federal Reserve Chairman Ben Bernanke that full takeovers of banks are the wrong way to go.
“It would give the false impression that all banks are insolvent, and investors would immediately start betting on which banks would be next, possibly creating a self-fulfilling prophecy,” he said. “And government control of large banks would politicize lending decisions and the capital allocation process, damaging the economy.”
Lewis said the United States should emerge from the global recession relatively early, perhaps this year, and praised federal efforts to spur lending and consumer spending.
“There is too much ammunition being fired from too many directions to not bring this beast down,” he said.
Lewis touched on two areas that have drawn fire from politicians and banking industry critics: executive pay and sponsorships of sports teams.
Alluding to a provision in February’s government stimulus package, Lewis said it is wrong to require TARP recipients to cap pay of executives who are just below the top level and produce high amounts of revenue. He said they could be lured by foreign banks or boutique firms not subject to such limits.
He also said Bank of America’s extensive sports marketing efforts generate $3 of profit and $10 of revenue for every dollar spent. Bank of America is the official bank of Major League Baseball and NASCAR, and has the naming rights to the stadium for the Carolina Panthers football team in its hometown of Charlotte.
Reporting by Jim Finkle and Svea Herbst-Bayliss in Boston, and Elinor Comlay and Jonathan Stempel in New York; editing by Jeffrey Benkoe and Andre Grenon