- Bank of America Corp., the lender that is buying Merrill Lynch & Co., is preparing for a weaker economy by slashing its dividend in half and raising at least $10 billion in a sale of common stock.
The dividend was cut to 32 cents a share, the Charlotte, North Carolina-based bank said yesterday. Chief Executive Officer Kenneth Lewis said the U.S. economy slowed in the past 45 days with little prospect for immediate improvement.
``The recession is going to be a little deeper than we thought,'' Lewis said on a conference call. ``It's going to take some more time and some more pain.''
Bank of America announced its third-quarter earnings two weeks early. Profit dropped 68 percent to $1.18 billion, or 15 cents a share, in the quarter ended Sept. 30, from $3.7 billion, or 82 cents, a year earlier. Analysts predicted profit of 61 cents a share for the quarter, the average of 20 estimates compiled by Bloomberg.
``We don't look real smart today, given what's happened,'' Lewis said. ``But all in all we just thought it was prudent to get out there sooner rather than later.
``You could talk about a miss on estimates, but estimates don't seem to mean as much as they used to. And we thought that having a level of profitability over a billion dollars might distinguish us among our competitors.''
Bank of America dropped $2.26, or 6.6 percent, to $32.22 yesterday in New York Stock Exchange trading. It is down 22 percent for the year. The KBW Bank Index has plunged 28 percent this year.
Credit Markets
U.S. Federal Reserve and Treasury officials are considering new ways of helping credit markets, as banks hoard cash and corporate short-term borrowing rates soar. Stocks fell around the world yesterday on the first full day of trading after the U.S. enacted a $700 billion bank-bailout plan on Oct. 3. The Standard & Poor's 500 Index retreated almost 4 percent.
``The economy weakened materially from the second quarter as evidenced by rising unemployment, bankruptcies and continuing home-price declines,'' Lewis said.
The Bank of America share offering has already started, according to a statement, with the company and Merrill Lynch managing the sale. Bank of America may realize ``a few billion dollars'' more than $10 billion, depending on investor demand, Lewis said.
Expansion
Lewis has been taking advantage of the financial industry's disarray to expand. In July he bought Countrywide Financial Corp., the largest U.S. home lender, for $2.5 billion. Last month he agreed to buy Merrill Lynch, the world's largest securities brokerage, for $50 billion.
The share sale was widely expected, said Nancy Bush, an independent bank analyst in Annandale, New Jersey.
``With Merrill and Countrywide on the plate, and whatever else is coming down the highway, I'm surprised they aren't raising more capital,'' she said.
Bank of America earned more than $5 billion for five consecutive quarters in 2006 and 2007 and expects to achieve higher profit once the economy rebounds and benefits from Countrywide and Merrill Lynch kick in, Lewis said on the call.
``While I won't call the dividend cut temporary, once our earnings return to more normalized levels, I'll be the first one to ask our board for a dividend review,'' he said.
Retail deposits advanced $56 billion to $586 billion in the quarter, boosted by the addition of $35 billion from Countrywide. Much of the increase occurred in September from the ``flight to quality,'' in which depositors seek out banks seen as safe places to store cash as other institutions fail, Chief Financial Officer Joe Price said.
