The lower earnings in the third quarter compared with a year earlier were caused by increase in provision expense, as well as the rising cost of credit, particularly brought on by Countrywide Financial Corporation, according to a Bank of America release. This was the first time Countrywide results were factored into Bank of America’s quarterly earnings.
As far as a silver lining, Bank of America pointed out that it is also benefiting from “consumer and business flight to safety,’ illustrated by year-over-year increases in loans and especially deposits. The company also said that it continues to increase the number of customer accounts and make progress in investment banking.
In addition to selling stock, in order to raise capital, the board of directors decided on a dividend reduction of $0.64 per share, assuming the current number of issued outstanding shares. The quarterly dividend on common stock of $0.32 will be paid on December 26 and would add more than $1.4 billion to capital each quarter, Bank of America said.
“These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,” said Kenneth Lewis, chairman and CEO of Bank of America, in the release. While Lewis noted that investors are disappointed with the dividend reduction, he said: “It it not a decision we made lightly. However, we cannot pay out what we have not earned.’
In the release, Bank of America noted the recent acquisition of Merrill Lynch. The company has begun to announce the senior management team of the combined company and transition teams are beginning to map out activities (see Thain To Head Wealth Management at Bank of America).