CNBC BofA CEO Says 'Credit Is Bad' And Is 'Going to Get Worse'

Bank of America warned of worsening loan default problems Monday even as it posted a first-quarter profit of $2.81 billion.

Investors concerned about the banking industry's health sent financial stocks and the overall market sharply lower.

Although Bank of America said higher revenue from the purchase of Merrill Lynch helped offset a surge in credit costs, it took a hefty $13.4 billion provision for credit losses during the first three months of the year.

The bank's stock [BAC 8.02 -2.58 (-24.34%) ] fell sharply as the overall stock market slid.

Although last week Wall Street was happy with better-than-expected results from JPMorgan Chase [JPM 29.69 -3.57 (-10.73%) ], Goldman Sachs Group [GS 115.01 -5.59 (-4.64%) ] and Citigroup [C 2.94 -0.71 (-19.45%) ], banking companies generally benefited during the quarter from unusually strong bond trading, a trend not expected to continue while loan problems persist.

Charlotte, N.C.-based Bank of America reported a similar performance during the first quarter.

"Like it or not, capital markets is now a core business for Bank of America, and that has more volatile returns than other businesses," said Celent banking analyst Bart Narter. "Bank of America is no longer exclusively a retail bank and there can be more fluctuations."

Bank of America earned $2.81 billion after paying preferred dividends, or 44 cents per share, compared with a profit of $1.02 billion, 23 cents per share, in the year ago period. Analysts surveyed by Thomson Reuters expected profit of 4 cents per share.

Troubled loans, or nonperforming assets, increased to $25.7 billion from $7.8 billion a year ago. The bank also lost $1.8 billion on card services, after posting a profit a year ago.

"Credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve." Lewis said during a conference call with analysts, noting that the bank continues to face challenges. "Whether that turn is later this year or in the first half of 2010, I'm not going to hazard a guess." more...