Even the stalwarts stumble, as evidenced by Bank of America's third-quarter earnings, which were announced Monday, two weeks ahead of schedule.
The Charlotte bank's earnings fell a precipitous 68 percent, to $1.18 billion, driven largely by its July 1 purchase of Countrywide Financial Corp., a California mortgage lender known for nontraditional loans. Over the weekend, Countrywide agreed to settle lawsuits with 11 states by providing $8.4 billion to modify loans for homeowners.
Bank of America also announced two initiatives to shore up capital. The bank intends to raise $10 billion on the markets, which can dilute the value of current shareholders, and will cut its shareholder dividend payout for the first time in years, from 64 cents per share to 32 cents.
Still, Bank of America is faring better than many peers that have been losing money this year, and it has acted to bring Countrywide's lending standards in line with its more conservative rules.
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Chief executive Ken Lewis acknowledged that investors will be disappointed in the dividend reduction. "It is not a decision we made lightly,” Lewis said. “However, we cannot pay out what we have not earned. Our goal is to resume dividend increases from the new level as soon as our earnings performance warrants.”
Lewis added that “these are the most difficult times for financial institutions that I have experienced in my 39 years in banking.”
"Both economic and financial market conditions have changed significantly in the last two months,” he said, explaining why the company is raising capital.
The bank's retail deposits and investment banking income were up, which Bank of America attributed to consumers' “flight to safety,” implying that customers are nervous about keeping their money in some other financial institutions.
However, the bank took losses on several areas that are affecting most financial institutions, including rising credit-card delinquencies and buying back auction-rate securities. The bank wrote down $320 billion on its shares of Fannie Mae and Freddie Mac, the troubled mortgage lenders taken over by the government last month.
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