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A decade-long push into investment banking by one of America's biggest retail banks came to an abrupt and painful end yesterday, as Bank of America said the credit crisis had destroyed its Wall St profits.
Ken Lewis, the ambitious chief executive who masterminded the bank's expansion into exotic
new businesses, bluntly told analysts he ruled out any further acquisitions in its investment banking division.
"I've had all of the fun I can stand in investment banking at the moment."
And he promised a review of whether Bank of America would stay in the investment banking business at all, refusing to say he would "stay the course".
At the very least, he signalled, there would be big cuts.
The bank admitted losses of US$527 million ($703.7 million) on complex debt products, whose value ultimately rests on mortgages taken out by low-income Americans.
In total, trading losses were US$1.46 billion ($1.94 billion) in the three months to the end of September, much worse than anyone had been predicting, and a stinging reversal from the US$731 million profit posted in the same period last year.
The value of mortgage-backed debt has collapsed as Americans have begun defaulting on home loans in record numbers.
This week the bank said it was joining a bid to resuscitate that market, with a new vehicle that would buy some of the debts held in banks' off-balance sheet investment vehicles, but yesterday it was unclear whether the rescue deal would draw wide support.
Instead, Lewis was left to count the cost of his bank's misadventures in credit markets that had been booming until as recently as August, but where Bank of America took on more risk than it could handle in a downturn.
With additional write-downs of US$247 million on loans for private equity buy-outs, Bank of America's investment banking profit collapsed from US$1.43 billion in the third quarter of last year to just US$100 million. Revenues were down 44 per cent.
Adding in the retail bank, where higher provisions to cover bad loans also alarmed analysts, overall group earnings were down 32 per cent.
"We should have done better," Lewis said.
In six years at the helm, Lewis has quickly reshaped Bank of America from a regional retail player into a diversified financial powerhouse, through a string of ambitious acquisitions. Most recently, at the height of the crisis in the credit markets in August, he took a US$2 billion stake in Countrywide Financial, America's largest mortgage lender.
Edward Woods, the senior analyst with Celent, a Boston-based financial research and consulting firm, said the bank's problems this quarter could be a serious blow to Lewis' strategy of turning it from a regional retail bank into a global financial powerhouse.
The bank said it would scale back its share buy-back plans to conserve cash for investment, the second bank to do so this week, after Citigroup.
- Independent