B of A Discloses Boost in Loan Loss Reserves
BankAmerica more than quadrupled its allowance for construction and real estate development loan losses last year, according to a report filed Friday with the Securities and Exchange Commission.
The filing, known as a 10-K annual report, provided some of the first detailed information on the credit problems that led to BankAmerica’s net loss of $518 million last year.
The parent of Bank of America said that as of Dec. 31, its allowance for loan losses allocated to construction and development loans totaled $255 million, compared to $62 million a year earlier.
The $255-million allowance represented 6.18% of total construction and development loans outstanding, a very high percentage.
Other major problem areas included agriculture, whose $141-million allowance for loan losses represented a staggering 11.99% of total agricultural loans outstanding, and foreign loans. The allocation for foreign loan losses climbed to $752 million, or 3.60% of foreign loans, from $744 million, or 3.01% of foreign loans, a year earlier.
Latin Loans Cited
Moody’s Investors Service, a New York bond rating agency, Thursday cited concerns about BankAmerica’s credit problems in downgrading ratings on about $5.5 billion of its in BankAmerica’s long- and short-term debt and preferred stock.
Moody’s noted that continuing high levels of problem assets--particularly in Latin America--would be a continuing drag on the company’s profitability.
The rating change lowered about $4.7 billion in BankAmerica’s senior debt to “speculative grade,” a change that is likely to complicate BankAmerica’s attempt to raise new capital this year.
On Dec. 31, BankAmerica’s allowance for loan losses totaled $2.17 billion, or 2.94% of total loans outstanding. In 1986, the company suffered net loan losses of $1.41 billion, or 1.75% of total loans outstanding.
The areas that were hardest hit included agriculture, where 5.5% of total loans were charged off; commercial and industrial (2.05%); consumer installment (1.99%), and foreign (1.85%).
The filing also included a letter detailing A. W. Clausen’s compensation package for serving as BankAmerica’s chairman and chief executive. The package includes an annual salary of $575,000, a grant of options on 100,000 B of A shares, a cash bonus “to be established” later by a board committee, by the board of directors’ executive compensation committee, luncheon and country club memberships, a car and driver and other perquisites.
