BankAmerica: $529M In Losses

BankAmerica shares lost 10 percent of their value Wednesday morning after a $529 million trading loss and other problems cut third-quarter profits to about half of their year-ago level.

All told, the factors helped drive BankAmerica's (BAC) net income for the autumn quarter to $374 million, or 21 cents a share, compared with $1.73 billion, or 96 cents a share, a year ago.

Without the NationsBank-related merger charge, the bank reported operating earnings of $893 million, or 50 cents a share, against $1.77 billion, or 99 cents, a year ago.

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The gloomy report triggered at least one downgrade from the analysts; Warburg Dillon Read cut the stock to "reduce" from a "strong buy."

BankAmerica's stock sank 5 7/8 to 48 1/16 on the news. Overall, banks were off 1.9 percent at the open Wednesday, as measured by the S&P Bank Index.

BankAmerica said its provision for credit losses in the third quarter totaled $1.4 billion. The charge-offs included a $372 million "writedown of a credit to a trading and investment firm."

The Secret World Of Hedge Funds
While BankAmerica didn't name the firm, The New York Times on Wednesday cited analysts worried about the bank's exposure to the D.E. Shaw & Co. hedge fund.

After the $372 million charge, BankAmerica said it still has a $1 billion investment with the firm, and that it's "restructuring to purchase approximately $20 billion of fixed-income securities along with the related hedged positions."

Moreover, the bank said it has some $400 million in hedge fund exposure "which is substantially collateralized." It gave no further details ahead of a conference call with analysts.

Written By Emily Church