The loss was larger than analysts’ anticipated, and showed that Americans are still struggling to pay their bills amid the recession and growing unemployment. Stocks dropped on Wall Street and in Europe on the news.
“Obviously, credit costs remain high, and that is our major financial challenge going forward,” CEO Ken Lewis said in a statement released with the report. But he said there were positive signs that the situation would improve, including the leveling off of late credit card payments. Lewis is stepping down as CEO at the end of the year.
The bank wrote down almost $10 billion in loans in the third quarter, which was up nearly $1 billion from the previous quarter. The bank also added more than $2 billion to its reserves to cover bad loans. It also spent $400 million to end a legal dispute with the government in order to complete its buyout of Merrill Lynch, a controversial investment that has helped bring in revenue through its wealth-management business.
Other banks, including Citigroup and JPMorgan Chase, also saw losses on mortgage loans, though JPMorgan posted an overall profit for the quarter that exceeded expectations as did Goldman Sachs. Bank of America had reported big earnings for the first two quarters of this year.
Bank of America, the second-largest financial institution in the country, is seen as more vulnerable in times of high unemployment since a large portion of its business – 53 million clients – is through consumers and small businesses. The unemployment rate is hovering just beneath 10 percent are rising.