Bank sees $US3b debt write-down

Bank of America Corp, the second-largest US bank, has said it expects to write down $US3 billion of debt in the fourth quarter, as fallout from the nation's housing slump deepens.

The pretax loss stemmed from collateralised debt obligations, including those tied to riskier subprime mortgages, and could grow if market conditions worsened, Chief Financial Officer Joe Price said at a Merrill Lynch & Co banking and financial services conference.

Price said Bank of America is setting aside more money for housing-related losses, including to homebuilders, and to money market mutual funds that may be exposed to risky debt. The bank nevertheless considers the losses "manageable," he said.

Shares of the Charlotte, North Carolina-based bank rose, as some analysts had projected an even larger write-down. The shares were up $US1.76, ($NZ2.37) or 4 per cent, to $US45.74 in afternoon trading. They began the year at $US53.39.

"The losses are not only manageable for the bank, but were long ago discounted by investors," said Marshall Front, who oversees $US800 million at Front Barnet Associates LLC in Chicago, including Bank of America shares. "Unless something enormous and unforeseen happens, major, diversified well-capitalized banks can handle these losses."

Bank of America joined Citigroup Inc, Morgan Stanley, Wachovia Corp and other banks in projecting large fourth-quarter write-downs for exposure to mortgages and other debt that investors are no longer willing to buy.

"With the significant deterioration that we've seen. . . it does make these things difficult to value," Price said.

Citigroup said it might write off $US8 billion to $US11 billion, while Morgan Stanley projected $US3.7 billion and Wachovia $US1.1 billion. Merrill Lynch suffered an $US8.4 billion write-down in the third quarter. Industrywide write-downs so far total well over $US40 billion.

Analysts, on average, had expected Bank of America to post a fourth-quarter profit of $US1.10 per share on revenue of $US18.82 billion, according to Reuters Estimates. The $US3 billion pretax loss equals roughly one month of profit. Citigroup analyst Keith Horowitz had projected a $US3.3 billion write-down.

Among other executives at the Merrill Lynch conference, Goldman Sachs Group Inc Chief Executive Lloyd Blankfein said his Wall Street investment bank didn't expect significant asset write-downs.

Meanwhile, JPMorgan Chase & Co Chief Executive Jamie Dimon said "we think we're fine," as he discussed the third-largest US bank's subprime and CDO exposures. Shares of Goldman and JPMorgan rose, 7 per cent and 5.5 per cent respectively.

Price said some CDOs that Bank of America is writing down are exposed to subprime mortgages, which go to people with poor credit. The bank has not offered such loans since 2001.

He said the bank also expects to set aside $US300 million to help money funds exposed to so-called structured investment vehicles to preserve a constant $US1 share price. This amount is on top of $US300 million last quarter, he said. Some SIVs have struggled as market liquidity deteriorated.

In addition, Bank of America expects to set aside $US300 million for a troubled "mezzanine investment," Price said.

Mezzanine financing is often used in buyouts. A bank spokesman declined to elaborate.

The bank plans to resume stock buybacks no sooner than July 2008 as it rebuilds capital levels, he said.

Bank of America's losses come after a third quarter when profit from the corporate and investment banking unit fell 93 per cent, helping push overall profit down 32 per cent to $US3.7 billion. Chief Executive Kenneth Lewis ordered a strategic review of the unit, which should be completed by early 2008.

- Reuters