Updated from 4:44 p.m. EDTBank of America ( BAC) said Monday it's cutting its quarterly dividend in half and aiming to raise $10 billion in order to shore up its capital base. The announcement came as the company revealed its quarterly earnings roughly two weeks before it was scheduled to do so. Charlotte-based Bank of America said it earned $1.18 billion, or 15 cents a share, in the third quarter, down from $3.70 billion and 82 cents a share in the same period a year earlier. As for its capital plans, the bank said it's targeting a Tier 1 capital ratio of 8%. To achieve that, the company plans to sell up to $10 billion of common stock and slash its dividend to 32 cents a share from 64 cents. The dividend will be paid on Dec. 26 to shareholders of record Dec. 5. Calculated using the current number of shares outstanding, the reduction would add more than $1.4 billion to each quarter's capital. "These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth Lewis, chairman and chief executive of Bank of America, in a press release. "We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months. We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago."
Lewis said it was important for the company to be at or near the 8% Tier 1 capital ratio level "given the recessionary conditions and outlook for still weaker economic performance, which we expect to drive higher credit losses and depress earnings." The company attributed its year-over-year earnings decline to a significant increase in its loss-provision expenses. That was partly offset by advances in certain income streams, largely coming from the acquisitions of Countrywide Financial and LaSalle Bank. Revenue in the third quarter rose 21% to $19.90 billion from $16.47 billion a year earlier. Net interest income was up 33% to $11.92 billion, thanks to the purchases of LaSalle and Countrywide, loan and deposit growth, and the effects of rate movements. However, those deals contributed heavily to driving up noninterest expenses by 34% to $11.66 billion. Bank of America has another big acquisition in the works, this time for Merrill Lynch ( MER), which it said last month it would buy. Noninterest income in the quarter advanced 7% to $7.98 billion. The company also recorded a $630 million charge for providing money to various cash funds and losses of $313 million related to auction-rate securities. Retail deposits grew by $56 billion to $586 billion from June 30 to Sept. 30, including the addition of $35 billion from Countrywide. The consumer credit card business experienced a decrease in purchase volumes, slowing repayments and higher delinquencies during the quarter. Credit-card net chargeoffs increased to $1.24 billion, representing a charge-off rate of 6.14%. Credit-card managed net credit losses rose to $3 billion, for a loss rate of 6.40%.
Investment banking income was up 22% from the previous year's third quarter to $474 million. Revenue in capital markets and advisory services was hurt by $952 million in CDO-related charges, $327 million in leveraged loan and commercial mortgage writedowns and $190 million in losses on a commitment to buy back auction-rate securities from clients. The company added almost $2 billion to the allowance for loan and lease losses during the quarter, mainly for consumer loans, including the unsecured consumer lending, credit-card and residential mortgage portfolios. Nonperforming assets were $13.36 billion or 1.42% of total loans, leases and foreclosed properties, compared with $9.75 billion, or 1.13%, at June 30 and $3.37 billion, or 0.43%, in the 2007 third quarter. Shares of Bank of America fell 6.6% in regular trading to $32.22 and lost another 7.6% in the after-hours market. Nobody ever made a dime by panicking, says Jim Cramer. Moneymaking opportunities exist despite the market turmoil. So where's a market master like Cramer putting his money these days? Check out his personal portfolio at Action Alerts PLUS. Take a free trial now.