Earlier this week the Bank of America Corporation (BofA) reported that their third quarter net income declined 32 percent to $3.70 billion in Q3 2008 from $5.42 billion in Q3 2007. Overall, the company's total earnings for the quarter was $1.18 billion, or $0.15 per share.

According to BofA, this lower net income was the result of a $1.33 billion decline in earnings in global corporate and investment banking. Additionally, during the third quarter provision expenses increased by $865 million due to “consumer and small business credit costs rising from post bankruptcy reform lows, growth, and seasoning in various portfolios and stress in several portfolios driven by the weakened U.S. Housing market.”

Despite these losses, BofA also reported that the total sales of retail products in Q3 rose 12 percent, while retail deposits saw an increase of $16.52 billion. First mortgage originations also rose by 27 percent in the quarter.

In response to both the gains and losses BofA experienced in Q3, Kenneth D. Lewis, chairman and CEO of BofA said, “While the significant dislocation in the capital markets have hurt most participants, we are still very disappointed in our third quarter performance. However the majority of our businesses experienced solid revenue growth as sales momentum continued, demonstrating the value of our diverse business mix. We continued to invest in our businesses for the long term and to introduce innovative products and services to differentiate Bank of America in the marketplace. While we cannot predict the near term, I am confident that such innovation and execution combined with the advantages of scale and reach are the formula for future success.

In addition to reporting its Q3 earnings, Bofa also announced two new initiatives to raise capital, the first being the sale of common stock with the target of raising $10 billion and the second being a quarterly dividend on common stock of $0.32 to be paid on December 26, 2008. This is a reduction from $0.64 paid in recent quarters, and according to the company would add more than $1.4 billion to capital each quarter.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth D. Lewis, chairman and chief executive officer. "We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months. We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago. We now believe it is important to be at or near our 8 percent Tier 1 capital ratio target given the recessionary conditions and outlook for still weaker economic performance which we expect to drive higher credit losses and depress earnings. We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability.

"We know many investors in our stock are quite disappointed with a dividend reduction," Lewis continued. "It is not a decision we made lightly. However, we cannot pay out what we have not earned. Our goal is to resume dividend increases from the new level as soon as our earnings performance warrants.” Lewis added that, “Our company continues to be profitable, and we have been able in the last year to make a number of moves that should significantly enhance our earnings when economic and financial market conditions improve. Our diversity and scale give us strength to deal with the current issues that few competitors can match. I have never been more optimistic about the long-term prospects of Bank of America."

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