BoA's card services unit, which includes unsecured consumer loans as well as business and consumer credit cards, lost $373 million in the third quarter, compared with a profit of $1.04 billion in the third quarter 2007. Defaults on cards, consumer loans and home mortgages contributed to a 47 percent decline in operating profit at the consumer and small-business division.
BoA provided more details on its third-quarter results today, two weeks after reporting a 68 percent decline in profit. Those earning, released early as the bank announced plans to raise $10 billion by selling common shares, were worse than analysts expected.
Joe Price, chief financial officer of BoA, said at the time that losses on consumer credit cards represented almost 60 percent of total consumer losses. Price added that late payments on cards were growing fasts in those states most affected by the housing slump. While California and Florida make up a little less than a quarter of the bank's domestic consumer credit card portfolio, he said the two states represent about a third of the bank's card losses.
"Credit cards have typically been among the most profitable parts of Bank of America's business," said Jim Campen, executive director of Americans for Fairness in Lending, a Boston-based nonprofit that studies the credit card industry. "As we enter the biggest financial crisis since the Great Depression, more people aren't going to be able to pay their credit cards."
CREDIT WITHOUT A SOCIAL SECURITY NUMBER
Maybe that little deal of offering credit cards to people without social security numbers (and who in the United States doesn't have a social security number) and who didn't have any credit history but who did maintain an overdraft-free checking account for three months, is finally coming back to haunt them. Bank of America, along with Wachovia, launched aggressive campaigns to woo illegal alien homebuyers. And where is BoA and Wachovia today?
In 2006 BoA began offering credit cards without requirements of Social Security numbers in five Los Angeles branches. By 2007, it was expanded to 51 Los Angeles branches.
BoA had defended the program, saying it complied with U.S. banking and antiterrorism laws. "These people are coming here for quality of life, and they deserve somebody to give them a chance to achieve that quality of life," said Brian Tuite, bank's director of Latin America card operations and one of the architects of the program. BoA said nearly half of the nation's Hispanic households have one of its credit cards.
It is interesting to note that BoA's domestic consumer credit card portfolio, stating that California and Florida represent about a third of the bank's card losses alone, that those two states also happen to be some of the nation's largest sanctuary areas for illegal immigrants. Regional reports across the country have decried the subprimes meltdown's impact on illegal immigrant "victims." A July report showed that in seven of 10 metro areas with the highest foreclosure rates, Hispanics represented at least one-third of the population; in two of those areas -- Merced and Salinas - Monterey, Calif -- Hispanics comprised half the population.
Even as recently as September 28, in Atlanta Georgia while the Mexican Consulate was issuing ID's to undocumented Georgians at the Old South Pawn Shop, representatives from Bank of America were on site distributing information on how to open a checking account. All that was needed was an original copy of their Mexican birth certificate, two forms of picture identification (with one being current), and an item such as a power bill, to prove one's residence in Georgia. A social security number was not required.
The Wall Street Journal had reported on one customer who had sneaked into the U.S. a decade ago, had been a customer of BoA for nine years, and had no credit history or Social Security number. He paid a $99 fee to obtain a $500-limit Visa card, and provided he stayed within his $500 credit limit and paid his balances on time, he would receive his $99 security payment back in three to six months, with a possible credit limit.
Although BoA is having serious losses due to the card services division, they are still giving out big salaries to execs. Reuters reported that MLs head of strategy will likely leave the bank with as much as $25 million in compensation.
The Wall Street Journal reported that Merrill's global strategy head, former Goldman Sachs executive Peter Kraus, who will be leaving, will be picking up a paycheck worth $10 million to $25 million. Kraus will receive the exit payment because the takeover of BoA altered the terms of his contract and he is not affected by a provision in the government's bank rescue plan that curbs executive compensation.
Yet there have been reported that up to 10,000 jobs of the 60,900 employees at Merrill Lynch are at risk due to elimination by Bank of America after completion of the $50 billion acquisition. Merrill Chief Executive John Thain had said that he expects "thousands" of job losses from the takeover by BoA with most of the cuts falling in IT (Information Technology), operations and "corporate functions," Thain said in a Bloomberg Television interview Monday of this week.
According to CNBCk, ML laid off 500 people in its trading division today. The total layoffs at Merril since the crisis began last year, now stands at around 5,000, with about half of those in New York.
"Bank of America's 'slash and burn' style following acquisitions is likely to be pronounced at Merrill," Dick Bove wrote, an analyst with Bloomberg. "That company still has approximately $30 billion in securities that could be written down. It overlaps with Bank of America in multiple divisions."