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BofA Profit Plummets

The Charlotte-based bank is the latest to take a massive hit due to credit trouble.

Updated from 9:04 a.m. EST

Bank of America

(BAC) - Get Bank of America Corp Report

on Tuesday reported its fourth-quarter profit plunged 95%, hurt by the ongoing credit crunch and a worsening housing environment that forced the company to set aside extra money to cover loan losses.

In the final three months of the year, the Charlotte bank made just $268 million, or 5 cents a share, compared with $5.26 billion, or $1.16 a share, in the year-earlier period. Revenue dropped 29% to $13.3 billion. Analysts estimated that the company would make 18 cents a share on $13.2 billion of revenue.

For the full year, BofA's profit dropped 29% to $14.9 billion, or $3.30 a share.

BofA's stock fell nearly 6% in premarket trading, but more recently was chugging 4.7% higher after financial stocks got a boost from the

Federal Reserve's

decision to make an

emergency rate cut on Tuesday. The Fed cut the fed funds rates by 75 basis points to 3.5%.

BofA, which earlier this month announced a deal to buy the troubled mortgage lender

Countrywide Financial


for $4 billion, was hurt on several fronts during the quarter, which was marked by further market turmoil. The Countrywide acquisition is expected to be completed in the second half of the year, the company said.

The bank completed several deals in the quarter. On the one hand, BofA completed its controversial purchase of LaSalle Bank in October. It also had a $1.5 billion gain from the sale of Marsico Capital Management, which likely helped BofA post a profit in the quarter, analysts say.

Still, the company had trading account losses of $5.44 billion, compared with profits of $460 million in the year-earlier period. The loss was driven by $5.3 billion worth of writedowns on collateralized debt obligations, or CDOs, pools of securitized loans and other asset-backed paper.

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BofA also incurred $400 million in losses as a result of writedowns to securities purchased from "certain company-managed cash management funds," as well as weaker trading results. Last month, BofA's asset management unit, Columbia Management, was forced to shut down one of its money market funds after several large institutional investors took their money out amid losses on certain asset-backed securities.

Equity investment income dropped $750 million, BofA said.

"While the market has been rocky and certainly impacted our results, our performance even under these conditions, has not been what it should have been," Chairman and CEO Ken Lewis said in a conference call on Tuesday.

"I think we tried to be as prudent as possible in assessing everything we could assess and do the right thing ... so within reason we think we did what we should have done," he said.

Lewis expects BofA's 2008 earnings to be "well above" $4 a share, "absent a market disruption."

Lewis said the bank expected "a pretty rocky start the year, improving thereafter."

BofA is one of many large financial institutions to be further crushed by the jittery markets and making moves to shield its businesses from the ongoing credit crisis. Last week


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posted a fourth-quarter net loss of nearly $10 billion due to $18.1 billion in writedowns. The writedowns forced the New York banking titan to slash its dividend and seek additional capital in order to steady its business.

After disastrous results in its investment banking arm during the third quarter, primarily due to writedowns on CDOs and other leveraged loan exposure, BofA is "going back to basics." The company eliminated 3,000 jobs firmwide.

Last week, BofA made further changes to its investment banking business by slashing 650 positions, putting its equity prime brokerage unit up for sale and by significantly scaling back its business in risky securities such as CDOs and other structured products.

BofA took a $3.31 billion provision in the fourth quarter. It said that higher charge-offs in home equity loans, as well as loans to homebuilders and small businesses, experienced trouble due to the weakness in the housing markets -- this was a large driver of higher credit costs.

The company's net charge-offs totaled $1.99 billion, or just under 1% of total average loans and leases. Losses in the company's average "managed" loans and lease portfolio was $3.31 billion, or 1.34% of the portfolio.

BofA is also looking to boost its capital levels this year to regain its target of 8% or more for Tier 1 capital, either through "earnings generation, capital-raising and no net share repurchases," while the dividend should remain sound, Lewis said. At the end of December, BofA's Tier 1 capital was 6.87%, partially due to acquisitions (it purchased LaSalle Bank on Oct. 1) and lower earnings, the company said.

"We remain committed to getting back to our 8% target in order to fulfill our needs from the LaSalle and Countrywide acquisitions and to replenish capital for our reduced earnings in the second half of 2007," CFO Joe Price said during the call. "While market conditions will dictate the ultimate timing of our actions, it is our intent to access the markets in the near future, and we have a variety of alternatives available to us. The ongoing earnings impact of these capital actions falls in the 10 cents a share range plus or minus a couple cents, excluding the impact of amounts related to Countrywide."

BofA's crosstown rival


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also had dismal earnings. Wachovia

reported fourth-quarter earnings nearly 98% lower than the year-ago period, as the bank suffered massive credit-related hits.