BofA Profit Slides, But Beats Expectations

Lewis said that with the $4.1 billion acquisition of Countrywide, BofA's Tier-1 capital level will fall below 8% in the third quarter, but hopes to recover Tier-1 capital to over 8% by mid-2009.

Countrywide's second-quarter charges of $3.7 billion include $2.3 billion provision for credit losses, $760 million provision for rep and warranties and $630 million in losses from securities impairments and capital markets activities.

BofA also increased the expected total cost saves from the acquisition by roughly one-third to $900 million. BofA previously said that it plans to eliminate 7,500 or 12.5% of Countrywide's staff.

Since the Countrywide deal did not close until the beginning of the third quarter, the impact of the deal will not be reflected until it reports quarterly earnings in October, the company said.

"Obviously their second quarter results -- a loss of $2.3 billion -- were significantly impacted by continued credit deterioration," CFO Joe Price said on the call. "Credit costs included in the second quarter were comprised of a credit provision, which included reps and warranties, impairments [on] available for sale securities, and other small items, which totaled just under $4 billion pre-tax. Much of this ... as it relates to the future -- and to the extent it can be -- will get recorded in purchase accounting, so it will have a much lower impact."

In relation to Countrywide's debt -- an issue that sent shares of the mortgage lender spiraling lower in May -- Price added that BofA does not "intend to guarantee the public debt, but we do understand the ramifications of not paying at maturity."