NEW YORK (Reuters) – Bank of America Corp (NYSE:BAC – News), posted its first quarterly loss in 17 years on Friday and slashed its dividend, hours after winning a multibillion-dollar lifeline from the U.S. government to help absorb Merrill Lynch, which lost a record $15.31 billion in the quarter.

The dismal results came as the largest U.S. bank faced mounting pressure from investors who questioned how well it will absorb a tidal wave of soured loans in an economy showing no signs of escaping a deep recession. Bank of America cut its quarterly dividend to a penny from 32 cents.

“It is difficult to focus on what is going right at this time,” a clearly downbeat Chief Executive Kenneth Lewis said on a conference call. “The economy and subsequently the credit markets literally hit a wall starting in September and culminating late in December, with the greatest impact of my almost 40 years in banking.”

Shares of Bank of America fell 7 cents to $8.25 in morning trading.

Hours after it obtained $20 billion in new capital from the government’s $700 billion Troubled Asset Relief Program (TARP), the bank reported a quarterly loss of $1.79 billion, or 48 cents per share, compared with a year-earlier profit of $268 million, or 5 cents.

Lewis sought government help after it became clear that Merrill’s credit losses were far higher than expected, and had threatened last month to scrap the $19.4 billion takeover without government help.

He said the government worried that scuttling the merger could create “serious systemic harm,” but that the Federal Reserve and Treasury Department gave assurances that they would provide necessary help if the merger closed.

Lewis added that the “severe” recession and credit crisis “will end some day, and people will remember that our company was there for them in hard times.”

Bank of America’s purchase of Merrill Lynch and its July acquisition of Countrywide Financial Corp gave the bank significant exposure to several major areas of the financial system, just as the economy’s decline was accelerating.

“They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal,” said Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania, which owns the bank’s shares.

Through Thursday, the stock has fallen more than 81 percent from its 52-week high last February.

CREDIT LOSSES SKYROCKET

Excluding merger costs, the loss was 44 cents per share. Net revenue rose 22 percent to $15.68 billion.

Analysts, on average, expected profit of 2 cents per share, according to Reuters Estimates.

The bank set aside $8.54 billion for bad loans, up from $6.45 billion in the third quarter and $3.31 billion a year earlier. Net charge-offs nearly tripled from a year earlier to $5.54 billion, or 2.36 percent of average loans and leases.

At Merrill, the loss was $9.62 per share, driven by significant writedowns. Bank of America said it expects the purchase to reduce earnings per share for two years, and still expects $7 billion of cost savings.

With the latest capital infusion, Bank of America has taken $45 billion in TARP money, the same amount as Citigroup Inc (NYSE:C – News), which won its own rescue package in November.

Citigroup also reported fourth-quarter results on Friday, posting a $8.29 billion loss, and said it plans to separate into two units after its own massive credit losses.

GOVERNMENT SHARES IN LOSSES

The rescue package for Bank of America calls for the government to share in losses on $118 billion in residential and commercial mortgages, derivatives and corporate debt. The bank will absorb the first $10 billion of losses, the government the next $10 billion, and the government 90 percent of the rest.

Lewis said the rescue package will help it operate as normally as possible. The bank said it had extended more than $115 billion in new loans in the quarter and was adding mortgage staff to accommodate more refinancings.

“This company will generate huge amounts of profit” when the economy returns to normal, Lewis said.

Bank of America is also struggling with defections of top Merrill executives, including brokerage chief Robert McCann and Greg Fleming, who was expected to run the combined investment bank.

Lewis said he is “happy” that former Merrill Chief Executive John Thain is taking a major role at the bank as head of global banking, securities and wealth management.

Bank of America has said it expects to cut 30,000 to 35,000 jobs over three years following the Merrill merger, on top of 7,500 job losses following the Countrywide acquisition.

(Reporting by Jonathan Stempel and Elinor Comlay; editing by Lisa Von Ahn and Jeffrey Benkoe)

source: yahoo finance.

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