Syndicated Loan Woes No Surprise at Bank of America

The other shoe dropped Wednesday at Bank of America (BAC Quote), as the bank confirmed its big corporate lending operation is under siege from bad loans.

The bank said it expects to earn between 85 and 90 cents a share in the fourth quarter, leaving it sharply below analysts' estimates. Speculation about the bank's credit quality has been rampant since Bank of America warned of credit problems in a regulatory filing in mid-November. Fourth-quarter earnings estimates have been dropping ever since, according to First Call/Thomson Financial, to $1.17 today from $1.28 the day before the November filing. Bank of America shares slid $3.19, or 7.7%, to $38 Wednesday.

"This has been one of my major concerns for a while," says James Mitchell, a banks analyst at Putnam Lovell who rates Bank of America stock a hold. His firm hasn't underwritten for Bank of America. "They were one of the more aggressive syndicated lenders, but at the same time they didn't have the financial flexibility to add to their reserves and be aggressive with taking care of problem credits." Bank of America referred requests for comment to its press statement.

Vicious Cycle

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