Bank of America profits plunge 32 per cent in credit crunch environment
19 October 2007
This week, the United States’ biggest banks have shown chinks in their armour as the credit crunch has brought huge drops in profits and shares.
The Bank of America – the largest retail bank and second largest bank in the country – has announced a fall of 32 per cent in its profits for the third quarter of 2007, largely due to problems in the mortgage and credit markets which originated in the US and have rippled across global economies.
Shares plunged 3.5 per cent to $48.26, causing the FTSE 100 to fall 68.3 points, and the Dow Jones to lose 46.3 points. This slump has come despite the Bank of America having set aside $2 billion contingency fund – an increase of 73 per cent – in order to cover loan defaults from the sub-prime situation.
The credit crisis is the same one that has had a knock on effect on the UK housing market, leading to mortgage provider Northern Rock borrowing £16 billion from the Bank of England; chief executive, Adam Applegarth resigned today.
The announcement of the Bank’s loss has come in the same week as other banks have suffered similar profit downfalls, such as JPMorgan, which has reported a 70 per cent loss, Washington Mutual (America’s third largest bank) has had its profits damaged by two thirds, and Citigroup has seen a 57 per cent decline.
“While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third quarter performance,” said Kenneth D. Lewis, chairman and chief executive officer of the Bank of America. “However, the majority of our businesses experienced solid revenue growth as sales momentum continued, demonstrating the value of our diverse business mix.”
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