MercoPress. South Atlantic News Agency

Debt levels of US banks overshadow quarterly profits

Concerns about debt levels at Bank of America have overshadowed its better than expected profits for the first three months of 2009. The US largest bank set aside 13.4 billion US dollars to cover credit losses, from the fourth quarter's 8.5 billion.

Its shares sank 20% by mid-afternoon, and dragged other banking stocks lower.

This was despite net income soaring to 4.2 billion in the first three months of 2009 from 1.2 billion a year earlier, beating analysts expectations.

Its results were inflated by its purchases of Merrill Lynch, which added 3.7 billion in net income, and Countrywide, which boosted its mortgage arm. Analysts said investors were looking beyond the bank's profit to the continuing concerns about the impact of the financial crisis on the banking system.

This sentiment pulled the Dow Jones index lower, with a knock-on effect on European and Latinamerican markets.

Bank of America has received 45 billion in government funds as part of the Treasury Department's 700 billion financial rescue package.

“We understand that we continue to face extremely difficult challenges,” said Bank of America's chief executive Ken Lewis.

Mr Lewis has been under intense pressure over the purchase of Merrill - which was approved before shareholders learned of huge losses at the investment bank, and before billions of dollars worth of bonuses were paid to Merrill employees.

Bank of America also said that Countrywide and Merrill had contributed “outstanding performances”.

Analyst Michael Holland of Holland and Company in New York said the headline figure was “a really, really healthy number given where expectations were just a few months ago”.

The results beat analysts' forecasts and add to signs that the banking sector might be improving.

Last week rival Citigroup reported its first quarterly net profit in nearly two years.

Citi's results came soon after positive earnings reports from Wells Fargo, Goldman Sachs and JP Morgan.

In January Bank of America was granted 20 billion in fresh US government aid and 118 billion worth of guarantees against bad assets. It has also benefited from selling shares it held in China Construction Bank.