Housing slump forces Bank of America to take $3 billion hit

CHARLOTTE, N.C. -- Bank of America Corp., the nation's second biggest bank, said Tuesday it will take a $3 billion debt-related writedown in the fourth quarter and warned its losses could grow as the market wrestles with the fallout from the housing and mortgage-lending slump.

Speaking at an investor conference in New York, chief financial officer Joe Price added that the bank is also setting aside more money for potential losses but considers the losses "manageable."

Bank of America is the latest of several financial service companies to lower the value of its lending portfolio in the wake of the subprime lending crisis. Last week, crosstown rival Wachovia Corp. marked down the value of its loan-backed securities by about $1.1 billion.

Mortgage-related writedowns across the banking industry were more than $40 billion in the third quarter, and the fourth quarter could end up being worse. Along with Bank of America and Wachovia, Citigroup Inc. has said it will write down as much as $11 billion and Morgan Stanley anticipates a writedown of up to $6 billion in the fourth quarter.

Both Bank of America and JPMorgan Chase & Co. said in filings with the Securities and Exchange Commission last week that their fourth-quarter results would suffer -- although neither quantified the expected losses.

Price said Tuesday that Bank of America does not intend to update the estimate of the writedown prior to the announcement of fourth quarter results in early January.

The latest writedown at Bank of America involves the value of its collateralized debt obligations, which are complex instruments that combine slices of different kind of risk and are often backed in part by subprime mortgages -- loans given to customers with poor credit history -- as well as other loans.

While Bank of America does not directly offer subprime loans, as defaults in such loans have risen, the value of the CDOs has plummeted.

"There is complexity and difficulty in estimating the value of these positions," Price said. "I might note that while we have classified these as principally supported by underlying subprime exposure, they do contain other asset classes in the collateral mix."

Despite the announcement, Bank of America shares rose $1.42, or 3.2 percent, to $45.40 in midday trading Tuesday.