A surge of troubled loans overshadowed better-than-expected earnings at Bank of America Corp, and the largest U.S. bank said it expects the credit situation to worsen, driving its shares down 24.3 percent.
While first-quarter profit more than doubled, the results failed to end calls by investors for Kenneth Lewis to step down as chief executive or give up the post of chairman.
The bank's purchase of Merrill Lynch & Co on January 1 led to an emergency federal bailout two weeks later. Bank of America has received $45 billion of taxpayer money, and some analysts believe it needs more.
Lewis on a conference call said we absolutely don't think we need additional capital, but he admitted conditions were tough as the recession deepens and unemployment rises. Nonperforming assets surged 41 percent in the quarter to $25.74 billion.
Make no doubt about it, credit is bad, and we believe credit is going to get worse, Lewis said.
Shares of Bank of America closed down $2.58 at $8.02, the biggest percentage decline since Feb 27 when Citigroup Inc got its latest government bailout. Monday's decline wiped out about $16.5 billion of market value. Shares of Bank of America had roughly quadrupled in the previous two months.
Bank of America joined Citigroup Inc, Goldman Sachs Group Inc and JPMorgan Chase & Co in posting better results than in the fourth quarter, but some improvement came from trading gains and accounting moves.
I don't see anything that makes me think all of a sudden people are going to take the pressure off Lewis, said Walter Todd, a portfolio manager at Greenwood Capital Associates LLC, which invests $650 million. The biggest question I have is, what is going on with these nonperforming assets?
Net income applicable to common shareholders at Bank of America more than doubled to $2.81 billion, or 44 cents per share, from $1.02 billion, or 23 cents, a year earlier. Net revenue also more than doubled to $35.76 billion.
Results included a $1.9 billion gain from selling shares of China Construction Bank Corp and $2.2 billion of gains tied to some Merrill structured notes.
Excluding one-time items, profit was 17 cents per share, according to Reuters Estimates. Analysts expected 4 cents.
Before the impact of preferred stock dividends paid to the government, net income rose to $4.25 billion from $1.21 billion. About 86 percent of earnings came from Merrill operations, while just $583 million came from Bank of America.
I don't think it changes anything, said Jonathan Finger, whose family sold Houston's Charter Bancshares Inc to a Bank of America predecessor and says it owns 1.1 million shares. The family is campaigning against the reelection of three bank directors, including Lewis and lead director O. Temple Sloan.
Another critic, CtW Investment Group, renewed its call for shareholders to remove Lewis and Sloan from the board.
Bank of America shares traded at $33.74 before the Merrill merger was announced last September 15. It is one of 19 large U.S. banks undergoing government stress tests to gauge its ability to withstand a deep recession. Results are due around May 4.
Lewis told CNBC television he would like and prefer to repay the $45 billion of bailout funds in 2009, but that the timing is up to regulators.
He confirmed that Bank of America may sell First Republic Bank, a private bank unit it inherited when it bought Merrill.
The KBW Bank Index slid 15.4 percent after The New York Times said U.S. officials decided they can avoid seeking more bank bailout funds by converting existing preferred stakes in banks into common stock.
Major U.S. stock indexes fell roughly 4 percent.
MORE CREDIT LOSSES
Critics have faulted Lewis for failing to disclose what he knew about losses at Merrill before shareholders voted to approve the purchase, valued at about $29.1 billion in common and preferred stock, in December.
Bank of America faces many lawsuits over Merrill and its mid-2008 purchase of Countrywide Financial Corp, once the nation's largest mortgage lender.
It has also infuriated regulators, including New York Attorney General Andrew Cuomo, over its handling of $3.62 billion of bonuses awarded to Merrill workers. Several top Merrill executives have left the combined company.
The bank added $6.44 billion to reserves for bad loans after losses from mortgages, credit cards and commercial real estate increased.
Bank of America set aside $13.38 billion for credit losses, nearly twice the $6.94 billion of charge-offs it incurred. The bank's allowance for credit losses is $30.41 billion, which is $4.66 billion above nonperforming assets.
Credit card operations lost $1.77 billion in the quarter as the rate of managed credit card net losses rose to 8.62 percent from 7.16 percent at year-end.
The bank's ratio of tangible common equity to tangible assets rose to 3.13 percent from 2.93 percent at year-end. Some analysts prefer banks to have a 5 percent ratio.
Mortgage and home equity loan production rose 79 percent from the fourth quarter to $89.26 billion.
But this suggests a loss of market share to Wells Fargo & Co, despite Countrywide. Wells Fargo said it made more than $100 billion of mortgage loans in the quarter.
Profit in the investment bank totaled $2.37 billion, compared with a year-earlier loss of $991 million, fueled primarily by $4.92 billion of trading profits. Wealth management profit more than doubled to $510 million.
Among U.S. banks, only Citigroup has also taken as much as $45 billion of taxpayer money since the credit crisis began.
Bank of America shareholders will consider whether to remove Lewis from the board or split the chairman and CEO jobs at the bank's annual meeting on April 29.
His fate is in the hands of the government, said Nancy Bush, an independent bank analyst. It's not up to him.
(Reporting by Elinor Comlay, Jonathan Stempel and Dan Wilchins; Editing by John Wallace and Steve Orlofsky)