(Corrects spelling of McDonald's name in paragraph 4)

CHARLOTTE, N.C./NEW YORK - Bank of America Corp posted a $1 billion quarterly loss on Friday as consumer credit woes eclipsed investment banking earnings, underlining why the bank remains on a government respirator.

The nation's largest bank received two taxpayer bailouts totaling $45 billion after acquiring broker Merrill Lynch & Co and mortgage lender Countrywide Financial Corp at the height of the financial crisis last year. It says it wants to start repaying the money but has not yet done so.

Bank of America's results further dampened the euphoria kicked off by JPMorgan Chase & Co's JPM.N stellar earnings report on Wednesday and indicated a steep climb ahead for banks before they can declare the worst of the financial crisis is over.

Investors are getting reminded that we have a ways to go to get through the credit cycle, said John McDonald, an analyst at Sanford C Bernstein in New York. There's still much room for improvement.

Credit losses on its consumer loans are eating into Bank of America's results as it tries to raise capital. It suffered $9.6 billion in credit losses in the third quarter, up from $4.4 billion a year earlier.

Bank of America is not going to fail. It's eventually going to turn this around -- but it will take time, said Gary Townsend, chief executive of asset manager Hill-Townsend Capital.

In an ironic twist, Merrill's investment banking operations -- where massive losses in the 2008 fourth quarter triggered strong criticism of Chief Executive Kenneth Lewis -- injected a shot of adrenaline into Bank of America's results. The unit produced $2.2 billion in profits.

Lewis, 62, has said he will retire at the end of the year. He faces multiple investigations into whether he disclosed enough information to shareholders before they approved the Merrill acquisition.

Forty years with the same company and eight years as the CEO is enough, Lewis said on the bank's earnings conference call. A board committee is currently searching for a successor.

Charlotte, North Carolina-based Bank of America reported a net loss of $1 billion, or 26 cents per share, for the third quarter, compared with net income of $1.18 billion, or 15 cents per share, in the same period last year. Analysts on average expected a loss of 21 cents per share, according to Thomson Reuters I/B/E/S.

The bank's shares slid as much as 5.7 percent to $17.06 in morning trading before recovering to $17.37 in afternoon trade, down 4 percent. The shares are off more than 20 percent over the past 12 months.

CREDIT WORRIES

The bank set aside $11.7 billion during the third quarter for credit losses, $1.7 billion less than in the second quarter but $5.3 billion more than in the third quarter of 2008.

Losses from home equity loans and residential and commercial mortgages soared, but the business hit hardest was the credit card unit. The unit's chargeoff rate -- the proportion of loans it does not expect to be repaid -- is the highest in the nation at 14.25 percent.

Like rival JPMorgan, Bank of America said that while loan-loss reserves and credit losses are still high, the rate of increase is slowing. We believe we may have peaked in total credit losses this quarter, Lewis said.

At the request of the Obama administration's pay czar, Lewis will not receive any compensation for 2009. But he may receive pension benefits and accrued and deferred stock compensation totaling $125 million on retirement, according to an analysis by compensation consultants James F. Reda & Associates.

Guessing who stands in line to succeed Lewis has become a popular parlor game on Wall Street. Bank of America has said it is considering six internal candidates: global wealth management president Sallie Krawcheck, consumer banking chief Brian Moynihan, global markets and banking president Tom Montag, home loans head Barbara Desoer, Chief Financial Officer Joe Price, and Chief Risk Officer Greg Curl.

Shareholders have urged that external candidates be considered, and sources have told Reuters the bank is considering hiring an interim CEO to lead the bank for several years.

They need to be able to come out with something in the next month, said Nancy Bush, analyst at NAB Research. It's just very important that this company be able to move forward.

Bank of America's total assets slipped to $2.251 trillion in the third quarter, down about $3 billion from the second quarter.

JPMorgan on Wednesday reported a $3.6 billion third-quarter profit and said its assets grew by $15 billion in the period, to $2.041 trillion. [ID:nN13183184] Like Bank of America, JPMorgan posted a big gain from banking, while Citigroup Inc, the third-largest U.S. bank, on Thursday reported its third-quarter securities and banking revenue fell by a third from a year earlier. [ID:nN15291217]

Bank of America has been battling to raise capital to meet an expected rise in capital requirements and to help persuade the government that it is strong enough to repay some of the bailout money. It agreed last month to sell the long-term assets of its Columbia Management business to Ameriprise Financial Inc for about $1 billion.

We are ... doing everything we can to repay the bailout funds, Lewis told analysts. He said the bank was waiting for government guidance on repayment criteria.

The bank paid $893 million in dividends on the government's Troubled Asset Relief Program investment in the third quarter. They need to start disentangling themselves from TARP, said Bush.

(Reporting by Joe Rauch and Elinor Comlay, additional reporting by Dan Wilchins; editing by John Wallace)

Investment Jpmorgan chase Citigroup Merrill Lynch