B of A Suffers $640-Million Quarter Loss
BankAmerica Corp., in a stunning lurch off the comeback trail, this morning reported a second-quarter net loss of $640 million because of a huge increase in its reserve for future loan losses.
Citing lower oil prices, a glut of office buildings and “increasing stresses in the private sectors of the developing world,” BankAmerica increased its loan-loss reserve by $600 million to $2.2 billion, or 2.67% of total loans outstanding.
The move followed a special meeting of BankAmerica’s board of directors Tuesday and led to renewed speculation about the future of the holding company’s embattled president and chief executive officer, Samuel H. Armacost.
Armacost relinquished the presidency of Bank of America, BankAmerica’s principal subsidiary, to Thomas A. Cooper in a March management shake-up that put Cooper in charge of the bank’s day-to-day operations.
Work Force Chilled
Today’s announcement sent chills through BankAmerica’s work force, where 1,200 jobs were eliminated during the second quarter and 3,800 more are slated to be cut before the end of 1986.
“We’d been under the impression that the worst was over,” said one middle manager who asked to remain anonymous. “This is very demoralizing.”
The second-quarter loss of $640 million--one of the largest quarterly deficits in banking history--was all the more surprising because BankAmerica posted a modest first-quarter profit after a disastrous year in 1985 in which the company posted a net loss of $337 million.
“How can you have confidence that the worst is finally behind them?” asked Morgan Stanley & Co. banking analyst Arthur P. Soter in New York. The analyst noted that BankAmerica’s “non-accrual and restructured loans”--bankers’ argot for problem loans --jumped during the second quarter to $4.12 billion from $3.8 billion despite charge-offs of $388 million.
The $640-million loss was the second largest quarterly loss for a U.S. bank since the Depression of the 1930s, behind Continental Illinois Corp.’s staggering $1.16-billion loss in the second quarter of 1984, which led to a bail-out by the Federal Deposit Insurance Corp.
In a prepared statement, Armacost said the boost in BankAmerica’s loan-loss reserve “reflects the unmistakable reality” of conditions in troubled sectors of the economy “and the effects they might have on our portfolio over time.”
He noted that the company’s liquidity and funding capacity remain strong.
