Loans Expert

Bank of America Corp., the largest U.S. lender, may report its third loss in the past five quarters as its new chief executive officer tallies costs from consumer loan defaults and repaying bailout funds.

Results for the final three months of 2009 are due tomorrow, and analysts’ estimates of a potential loss range as high as $4.9 billion by Sanford C. Bernstein’s John MacDonald. The bank’s largest rival, JPMorgan Chase & Co., last week called its own fourth quarter “a little disappointing,” even though profit more than quadrupled, as the retail unit posted a loss and the firm boosted consumer loan reserves by $1.9 billion.

Bank of America wrote off more than $15 billion in home and credit-card loan losses during the first three quarters of 2009, amid signs that the U.S. housing market is now stabilizing. New Chief Executive Officer Brian T. Moynihan, 50, promised to focus on improving operations after his predecessor Kenneth D. Lewis spent more than $120 billion on acquisitions since 2004.

“Our bet is that there will be continued improvement in the economy that should benefit Bank of America, but if that doesn’t happen, they will have a long battle back,” said Alan Villalon, a senior research analyst at FAF Advisors Inc., a unit of U.S. Bancorp that owns 9.5 million shares. “Their fortunes are tied to the U.S. economy.”

Bank of America repaid $45 billion of government rescue funds in December, freeing it from federal pay restrictions. The Charlotte, North Carolina-based bank said last week it expects to pay record bonuses to some employees while keeping the overall cost of compensation below previous years.

TARP Payment

Before redeeming preferred shares issued through the Troubled Asset Relief Program, the bank sold $19.3 billion in securities. Repaying TARP will entail a $4.1 billion charge.

The bank’s board said it would promote Moynihan on Dec. 17, two-and-a-half months after Lewis said he would retire as of Dec. 31. Moynihan’s career at Bank of America and a predecessor company included stints overseeing investment banking, wealth management and consumer businesses.

“Moynihan will get into the details and nitty-gritty of the business, which is a positive because too many banks are run by people who don’t know banking,” said Marshall Front, chairman of Front Barnett Associates LLC, a Chicago investment firm that holds about 342,000 shares.

The U.S. economy grew at a 2.2 percent annual rate in the third quarter, the first gain in more than a year.

Of the 33 analysts that track Bank of America, 26 rate the shares a “buy,” and not one has a “sell” recommendation, according to data compiled by Bloomberg. The stock, which traded as low as $2.53 in February, closed last week at $16.26 on the New York Stock Exchange.

Credit Losses

The bank may set aside $11 billion for credit losses during the quarter, down from an average $12.8 billion in the previous three quarters, as consumer-related defaults stabilize, Credit Suisse analyst Moshe Orenbuch wrote in a Jan. 7 report. Late payments on credit-card loans in December fell to the lowest level in almost a year, the bank said on Jan. 15.

“Nonperforming assets increased 9 percent during the third quarter versus a 21 percent gain in the previous quarter, which was a very positive sign,” Villalon said.

The outlook for Bank of America’s trading businesses may have weakened after JPMorgan Chase & Co. on Jan. 15 reported a sharper-than-expected decline in revenue.

“It’s likely the decline in fixed income also affected Merrill,” Front said, referring to the Merrill Lynch unit acquired last year. JPMorgan and Bank of America lead in overall U.S. investment banking and capital markets revenue.

Consumer Banking

JPMorgan cast doubt on the 2010 outlook for consumer banking, which remains the biggest business for Bank of America. While there is “some stability in delinquencies, consumer credit costs remain high and weak employment and home prices persist,” JPMorgan chief Jamie Dimon said in a statement.

JPMorgan is ranked second behind Bank of America and based in New York. Wells Fargo & Co., ranked fourth and based in San Francisco, is also scheduled to report results tomorrow.

“Bank of America has a larger exposure to the consumer than JPMorgan, so it may continue to be difficult going for them,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “The good news is that the expectations are pretty low.”

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