Bank of America Sees Bigger Writedowns
Bank of America Expects 4th-Qtr Writedowns to Exceed $3 Billion, but Still Remain Profitable
NEW YORK (AP) -- Bank of America Corp. said Wednesday in a regulatory filing it expects fourth-quarter writedowns of collateralized debt obligations to exceed the $3 billion it estimated a month ago, but that it expects to remain profitable in the period.
In a Securities and Exchange Commission filing, the bank said it was unsure how big the writedowns would be for the quarter.
CDOs are complex financial instruments that combine different types of loans and debt. The value of CDOs has declined rapidly as the underlying loans and debt, especially subprime mortgages given to customers with poor credit history, have increasingly defaulted in recent months.
"The markets turned down sharply in August and then many segments appeared to be recovering during the fall," Bank of America Chief Executive Kenneth Lewis, said in the filing. "However, in the past month, the markets have turned down again and will probably remain challenging into next year." The remarks were prepared in anticipation of a presentation Lewis is making Wednesday at a conference hosted by Goldman Sachs Group Inc.
Last month, Bank of America also estimated it would take a $300 million writedown on mezzanine investments, provide $600 million in support for cash funds and $230 million for a Visa Inc. settlement with American Express Co.
Bank of America expects to set aside $3.3 billion in the fourth quarter to cover loan losses, about $1.3 billion more than the previous quarter. About one-third of the increase will cover traditional growth and seasoning of portfolios while the remaining two-thirds is the result of deterioration primarily in consumer real estate lending and to a lesser extend small business lending.
The bank also expects trading revenue to decline sharply from the lack of business activity during the final quarter of the year.
Lewis said the bank is bracing for a weak market into the first quarter of 2008, but he is not predicting a recession.
"We currently believe GDP will grow at a below-trend 1.5 percent to 2 percent next year, reflecting improvement in the second half," Lewis said in the prepared remarks. "However, we are closely watching the impact on consumers of the housing recession, higher energy costs and subprime loans."
Bank of America Sees Bigger Writedowns: Financial News - Yahoo! Finance