Bank of America to Take $1.25 Bln After-Tax Charge
Looks like they don't want to end up having the FDIC take a hard look at them, like the bank we talked about last week...
Charlotte, Aug. 15 (Bloomberg) -- Bank of America Corp., the No. 3 U.S. bank,
will take a $1.25 billion after-tax charge in the third quarter to get out of two
unprofitable ventures: leasing autos and lending to customers with spotty credit
histories.
The bank, which said it is losing an average of $2,000 on each vehicle it leases,
will exit that business immediately. It will also liquidate its $26.3 billion portfolio
of subprime loans in seven to nine months, and sell offices and a portion of the
business to two unidentified buyers. The high-rate loans are made to borrowers
with bad credit histories or none.
Bank of America's exit from auto leasing follows similar moves by First Union
Corp. and other banks. Falling used car prices have made it increasingly difficult
for banks to make money in auto leasing in recent months, and most have
suffered losses.
``We don't like the charges, but we do like the fact that they are getting out of
these businesses,'' said Susan Roth, an analyst at Credit Suisse First Boston,
who advises investors to hold Bank of America shares. ``It lowers their risk to
profitability and improves earnings.''
Shares of Charlotte-based Bank of America rose 38 cents to $62.94 in
midmorning trading.
The charge is equal to more than half of what Bank of America typically earns in
a quarter. Its second-quarter profit from operations fell 1.9 percent to $2.02
billion, or $1.24 a share.
``Both of these businesses have very volatile earnings streams, have become
unattractive from a risk-reward standpoint and have not produced required rates of
return,'' Kenneth D. Lewis, chairman and chief executive, said in the statement.
Getting Out
Bank of America, which has 490,000 auto leases in force, isn't the only bank to
quit financing leases. National City Corp. stopped leasing cars in December
when it concluded the business would not return to health for several years.
KeyCorp exited auto leasing in May and took a charge of $25 million to make the
move.
Bank One Corp. Chief Executive Jamie Dimon said in a July interview the
company has cut its auto leasing portfolio by almost $3 billion in the last year to
about $7.4 billion, and hopes to pare it down to about one-third of that level in
coming years.
Bank of America is one of several large banks that have accumulated subprime
loan portfolios. In May, 6.4 percent of subprime mortgages were seriously
delinquent, up from 5.6 percent at the end of 2000, according to the Mortgage
Information Corp.
Superior Bank FSB, a closely held thrift half-owned by the billionaire Pritzker
family, was seized by federal regulators in July. The Office of Thrift Supervision
said losses on home and car loans to people with tarnished credit had depleted
its capital.
A drop in income from Bank of America's real estate business will be offset by
fewer losses from leasing and the decision may reduce operating earnings only
slightly, the company said.
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