Like at Citi, Provisions Are the Story at Bank of America in 1Q

While Bank of America Corp. post net income of $4.2 billion, credit-loss provisions continued to soar for the Charlotte, N.C., bank. In fact, provision were even worse at BAC than at Citi — and that’s saying a lot.

BAC provisioned $13.38 billion for credit losses, compared to $8.54 billion of provisions in the last quarter of 2008, and a 122.6% increase on a year-over-year basis. Yes, you read that right. The credit card provision alone was increased to $3.15 billion, a 164.6% increase versus the fourth quarter of 2008. That’s a staggering number.

What is important to recognize is that the provisioning is above the reserve building of $6.44 billion in the quarter.

Official earnings announcement here.

I’ll be live-blogging the earnings call here:

9:52 a.m.: Leveraged exposed still seems high at both the bank and at Merrill Lynch.

9:53 a.m.: Subprime unhedged exposure at $0.25 on the dollar. (Slide 18 of presentation.) Net credit loss ratios to exceed unemployment rate by at least 100 basis points. Residential loan charge offs are just ballooning. I don’t see how they call the Countrywide deal a good one when you see this kind of credit deterioration.

9:59 a.m.: Loss expectations of home equity, increasing losses, loss severity — basically the whole thing is unraveling.

10:08 a.m.: The bank is expecting net interest income to continue to decline, largely because of the difficulties on the secondary markets. The bank saw net interest income decline $587 million last quarter.

10:10 a.m.: Countrywide branches to be branded BofA this month. Merrill rebranding also taking place now.

Q&A

Why are NPLs on commercial going up so much?

A: Some contribution from Merrill. Extending to other aspects of commercial components. Not exceeding expectations, but a natural progression of the credits.

Will you sell other businesses?

A: First Republic is in the process as we speak. Anytime you acquire a company the size of ML, you step back and look at all the business lines. That process is going on.

Lot of volatility in trading, VAR. How are you going to manage the trading? What risk are you comfortable with?

A: The VAR will increase when you combine the two platforms. There are positions that are always a part of the business. The customer flow business first is the bias.

TALF, PPIP, considering it for exposures?

A: Process hasn’t been finalized. Any program that adds to price discovery will be helpful. Give it a try. There is still a lot to go before we make a final judgment.

Consumer portfolio, expecting more weakness?

A: I would expect it across the whole industry. Seasonal factors. Consider an auto portfolio, the way people buy cars in the spring.

Countrywide in the second quarter?

A: Production is good. Good percentage in purchase mortgages. MSR side, we wrote down almost $7 billion in the fourth quarter. Bit of a reversal in the first quarter. 83 bps is the end number on MSR, although it will be impacted by the government’s programs to some degree.

New account openings?

A: New accounts is good, but we are seeing some heaviness in closures. But even on a net basis, we are down slightly from 4Q — mainly from the closure side.

Prospects for credit card business, considering high losses there?

A: Unsecured credit cards are in the teeth of this slowdown. Have made some changes in pricing, but they won’t offset losses in total, which is why they are building reserves.

Government actions that could hurt revenue?

A: Looking at the business to evaluate what will affect the bank.

Stress test delay?

A: Treasury guys have been busy.

Where are markets stabilizing?

A: California seems to be stabilizing. Florida, we still see significant downdraft. The problems spreading across the country is correct. It is more of a broader spread, but Florida is still weakest.

Unemployment rate expectations?

A: Still see unemployment peaking in the single digits. Mid 30s peak to trough on housing prices.

Where are you with respect to the stress test?

A: Can’t comment.

How will pace of reserves going?

A: Extraordinary reserve bill. Expect further reserve build but not of that magnitude.