BofA CEO still sees economy turning in '09, and no need for a dividend cut, but 'all bets are off' if jobless rate surges
Here it is again, on the record: Bank of America Corp. CEO Ken Lewis doesn’t expect the bank to need to raise more capital or to cut the dividend on its stock, two moves many of its struggling rivals have been forced to make.
But in an interview in L.A. on Wednesday, Lewis acknowledged that his views on BofA’s ability to weather this economic storm depended on how many Americans are able to hold on to their jobs.
And he didn’t offer any near-term encouragement about the home-foreclosure situation, or about rising losses on the bank’s credit-card and home-equity-loan portfolios.
Lewis, 61, was in L.A. to give a speech ("Mending Our Mortgage Markets") to Town Hall Los Angeles and to visit the Countrywide Financial operations in Calabasas, nine days after Charlotte, N.C.-based BofA acquired the troubled mortgage giant. He also met with Times reporters and editors.
Some excerpts from the interview:
--On the bank’s capital situation and its dividend payment (now $2.56 a share at an annual rate): "I’ll restate what I said two or three weeks ago. Given our view of things, we do not expect to cut the dividend nor do we expect to have to raise capital.
"We get investors and analysts calling us saying, ‘You’ve got to cut your dividend because the market is saying you should cut your dividend.’ We’ve reminded them that the market over the short-term is not always right."
At Wednesday’s closing stock price of $22.06, BofA’s annualized dividend yield was 11.6% -- far above the yields on most other big bank stocks.
--On the outlook for home foreclosures and repossessions: "We make projections but I can’t tell you that we feel like we’ve got our hands around it at this point."
Like other lenders, he figures much will depend on where, and when, home prices bottom. "We think nationwide that we’ve got another 15% housing decline, and we think it will probably go into at least the first quarter of next year."
In California, Florida and other previously red-hot markets, BofA expects a 20% additional price decline, on average, Lewis said.
--On growing losses on credit cards and home-equity loans: Credit card delinquencies have risen but "those still are within our ability to predict. We’ve done a good job of saying, 'Here’s about what we think they’ll be next month,' and they’ve been right in that area.
"That is not so with home equity. Home equity [loan] deterioration has been much more rapid than we predicted. Our portfolio has a lower loss rate than most but the rate of increase has been pretty substantial. And the severity of loss is much higher than in any other period because of the dramatic house price declines. You’re going from a secured product to an unsecured product."
Note here, Lewis is talking about BofA’s home-equity loan portfolio, not Countrywide’s.
--On the outlook for U.S. consumer spending: "I do think there’s going to have to be a retrenchment. The financial system is going to force that. Because you’re not going to get the same loans or the same terms you did before.
"To the extent that that retrenchment then causes a kind of a domino effect and therefore unemployment starts to rise higher than we think, then you’ve created a situation that is really ugly.
"If you can see unemployment levels peaking at 6% [compared with the current 5.5%] then I think we’re OK" in expecting the economy to begin reviving in mid-2009, he said.
If unemployment rises "substantially" above 6%, Lewis said, then "all bets are off."
Photo: BofA CEO Ken Lewis. Lawrence K. Ho/Los Angeles Times