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Analysts expect BofA loss amid credit, TARP


A Bank of America sign is pictured outside a bank branch in Charlotte, North Carolina January 19, 2010. REUTERS/Chris Keane
A Bank of America sign is pictured outside a bank branch in Charlotte, North Carolina January 19, 2010. REUTERS/Chris Keane

By Joe Rauch

CHARLOTTE, North Carolina (Reuters) - Bank of America Corp <BAC.N> likely will post another loss when it reports fourth-quarter earnings on Wednesday, as banks continue to grapple with their problems loans and a weak economy.

Bank of America is the largest U.S. consumer lender, and its quarterly results offer Wall Street an important window onto the economic health of Main Street as people try to recover from the global recession.

The bank likely will report an increase of 50 percent or more in fourth-quarter revenue compared with last year, but analysts are paying more attention to how it will do compared with the third quarter of 2009 because the financial crisis skewed results dramatically last year.

"I think we have to be expecting a weak report," said Paul Miller, an FBR Capital Markets analyst.

Compared with the third quarter, revenue probably will fall, analysts said, as major banks' investment banking units saw activity slow in the second-half of 2009.

Bank of America reported total investment banking income of $1.3 billion in the third quarter of 2009, split between its Global Markets and Global Banking divisions, as Bank of America's investment bank advisory fees spiked 71 percent, buttressing against a deeper third quarter net loss than the $1 billion it reported.

But JPMorgan and Citigroup each reported lower revenues from their investment banking businesses in the fourth quarter.

A similar result would be bad news for Bank of America because while its ledger of bad loans stabilized in the third quarter, totaling $11.7 billion in total credit provisions, analysts said banks are still struggling with problem loans, as Citi's and JPMorgan's recent reports also suggest.

Credit woes and a $45 billion repayment to the U.S. Troubled Asset Relief Program (TARP) probably will result in a loss.

Bank of America is expected to report a loss of 52 cents a share, according to Thomson Reuters I/B/E/S poll of 25 analysts. StarMine SmartEstimates, a consensus estimate that gives more weight to recent forecasts by top-rated analysts, said the bank's per-share loss will be worse -- 53 cents.

The results come after JPMorgan Chase and Citigroup reported certain loan segments where problems spiked, even as overall problem loans remained relatively stable, and lower-than-expected revenues in the fourth quarter.

Bank of America's numbers should follow its peers, analysts said.

Credit problems are continuing to grow in some loans and improve in others. But total slower creation of problem loans is not enough to offset lower revenue, analysts said.

"JPMorgan is going to be the cookie cutter for these banks," Miller said.

JPMorgan's $3.3 billion profit on Friday surprised investors and analysts on the down side as the company reported $7.8 billion in problem loans, down slightly from $8.1 billion in third quarter and as executives gave a cautious 2010 outlook.

Though JPMorgan's credit problems were lower overall, the tripling of its losses on prime mortgages, up to $568 million, surprised analysts, sparking renewed fears about consumer lending.

Citigroup on Tuesday reported a $7.6 billion loss, driven by credit losses and a $20 billion repayment of U.S. government aid.

Bank of America is more exposed to car loans, credit cards, home mortgages and other consumer debt. U.S. unemployment at more than 10 percent does not help.

Miller expects the bank's credit card business to recover a bit, but other kinds of loan delinquencies would worsen.

Bank of America's total credit card charge-offs in December increased to 13.53 percent, the first increase in three months, while delinquencies fell to 7.44 percent, according to the most recent U.S. credit card data.

A "double dip" recession in 2010 could further worsen the big bank's credit problems.

"You're naive or overly optimistic if you're not concerned," said Wells Fargo & Co <WFC.N> analyst Matt Burnell.

(Reporting by Joe Rauch)

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