Problem loans hit BofA By Gary Silverman in New York Published: October 16 2000 19:28GMT | Last Updated: October 16 2000 21:02GMT

Bank of America provided fresh evidence of the malaise in US banking on Monday, reporting flat operating earnings and rapidly rising problem loans in the third quarter.

The second-biggest US financial services company said its non-performing assets last quarter hit $4.4bn, up 45 per cent from $3bn last year.

The report follows steep falls in US financial stocks that analysts have linked in part to concerns about fraying credit quality.

Bank of America, based in Charlotte, North Carolina, said its non-performing loans were confined to particular industries - financial services, movie theatres and two paging companies.

Jim Hance, Bank of America's chief financial officer, said the difficulties appeared unrelated to a general economic downturn, a point also made by regulators. However, he said the bank was braced for more problems.

"We expect non-performers to increase in the fourth quarter and probably in the first quarter of next year as well," he said. "The key will be what happens in the economy - whether we have the soft landing everyone is predicting."

Analysts questioned whether Bank of America was preparing properly, noting that its loan loss reserves were falling, both in absolute terms and as a percentage of total loans.

The company said its reserves were based on its loan losses, which fell this quarter to $435m, from $470m last quarter.

However, Diane Glossman, analyst at UBS Warburg, said: "People are concerned that the rising non-performing assets suggest they [write-offs] will be going up in the future."

By midday, Bank of America's shares were down $1.25, or 2.68 per cent, to $45.31.

Operating earnings last quarter were $2.2bn, up from $2.1bn last year. Earnings per share were $1.31, rising from $1.23 largely because the company has bought back stock. The First Call/Thomson Financial consensus forecast was $1.29 a share.

Net earnings fell 15 per cent to $1.8bn, from $2.2bn last year, reflecting a $257m pre-tax loss on auto leases and an expected after-tax charge of $346m for staff cuts.

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-- Carl Jenkins (Somewherepress@aol.com), October 17, 2000

Answers

Jim Hance, Bank of America's chief financial officer, said the difficulties appeared unrelated to a general economic downturn, a point also made by regulators. However, he said the bank was braced for more problems.

Its due to over expansion exacerbated by the economy which implies that we can expand forever with huge debt and that future growth will cover that debt. Four major movie theater chains have filed for bankruptcy. Apparently their overpaid CEOs don't have the "vision" required to prevent overexpansion. It reminds me a lot of the internet and overexpansion on Amazon's part. The death of Amazon will occur in the first quarter of 2001 after their Christmas results will be released. Another classic case of overexpansion.

-- Guy Daley (guydaley@altavista.com), October 17, 2000.

Many of these problems have their roots in the overpaid executives who run these companies.Niagara Mohawk,upstate New Yorks energy provider has either been bought out or merged with an english company.In this process the CEO (who has been there 5 years)is going to walk with 9 million of the poor peoples dollars after the deal is done.In my opinion this is dirty dealing and it is happening in all major industries today.These huge amounts of money have to come from somewhere.They actually do come from the pocket of the poor working guy/gal.This is in the form of higher rates we either are paying or will pay for goods/services/necessities.

-- jax (jax@borg.com), October 17, 2000.