Ch. 9 - Uncollectible accounts – Accounts Receivable and Notes Receivable

After you read the articles re-printed below, please post an answer to one of the questions, or you can post a comment related to this topic. Even if you are not a consumer whose account is being written off, you will be impacted as a consumer.

Bank of America Writeoffs May Rise 10%, Analyst Says

David Mildenberg

July 6 (Bloomberg) -- Bank of America Corp., the biggest U.S. lender, may report a 10 percent jump in uncollectible loans to $7.6 billion when second-quarter earnings are released this month, Credit Suisse said in a report.

Bad debts included $1.9 billion tied to home equity, and about 10.4 percent of credit-card loans will be written off, analyst Moshe Orenbuch wrote today in the report. The Charlotte, North Carolina-based bank charged off $6.9 billion in the first quarter, he said.

Bank of America, the biggest U.S. lender by assets and deposits, probably had a 32-cent-a-share profit for the quarter, including a $5.2 billion pretax gain from the sale of China Construction Bank Corp. shares, Orenbuch said. Excluding the gain and a $750 million assessment to replenish the Federal Deposit Insurance Corp.’s reserve fund, the bank probably lost 15 cents a share, he wrote.

Chief Executive Officer Kenneth Lewis is under pressure from investors to show losses are under control when the bank reports results on July 17. U.S. stress tests in May predicted the company could face $136 billion in loan losses through 2010 in an extended recession. The bank completed a campaign in June to close the $33.9 billion capital gap identified in the stress tests, the most among 19 lenders examined.

Loan-Loss Levels

Bank of America expects charge-offs to increase for the second and third quarters, though at a lower rate than cited in the stress tests, Chief Financial Officer Joe Price said on a May 7 conference call. The tests assumed charge-offs will average $11.4 billion per quarter through the end of 2010, higher than the bank’s estimates, Bank of America said in a May 7 statement. The company “believes its pre-provision net revenue will significantly exceed the government’s estimate,” according to the statement.

The lender received $45 billion in U.S. funds plus a government guarantee of $118 billion in assets, most tied to its January acquisition of Merrill Lynch & Co.

Improving capital markets are benefiting Bank of America, Orenbuch said, with expected trade-related revenue of $4.5 billion and investment banking fees of $1.2 billion.

Credit Suisse rates Bank of America “neutral” with a 12- month price target of $12. The shares slid 49 cents, or 3.9 percent, to $12.15 at 4:15 p.m. in New York Stock Exchange composite trading, and have declined 14 percent this year.

Orenbuch’s price target is at the low end of analysts surveyed by Bloomberg. The most bullish analyst, Morgan Stanley’s Betsy Graseck, expects the bank to trade at $32 within the next year, according to a May 22 report.

For Related News and Information: Bloomberg Bailout Scorecard: WDCI CHART <GO> Best and worst financial stocks: S15FINL <Index> GP YTD <GO> Consumer loan rate spreads: CRS <GO> Map of today’s trading: IMAP <GO> Financial company news: FTOP <GO>

Last Updated: July 6, 2009 16:44 EDT

Source:

Bank of America Credit-Card Bond Ratings May Be Cut by Moody’s

By Sarah Mulholland

July 22 (Bloomberg) -- Moody’s Investors Service may cut the ratings on $64.4 billion in bonds backed by credit card payments issued by Bank of America Corp. as defaults soar.

The charge-off rate jumped by almost 50 percent in the past three months, Moody’s said in a statement late yesterday. The rate was 14.1 percent in June, compared with 9.6 percent in March, according to the New York-based ratings company. Charge- offs are accounts deemed uncollectible.

“The steepness of the recent trend in charge-off rates was unexpected and falls outside of our recently revised expectations,” Moody’s said in the statement.

The Charlotte, North Carolina-based lender started taking steps in March to protect top-ranked bonds from losses and thwart ratings cuts as delinquencies climb, according to Wells Fargo Securities. One of the protective mechanisms is set to expire in September, according to Moody’s. Bank of America is not required to extend the so-called discount option, Moody’s said, though the bank likely will.

The discount option allows the lender to reclassify principal payments as interest, boosting the return on the asset-backed portfolio for investors.

Bank of America’s credit card unit reported a $1.62 billion loss on July 17, compared with a $582 million profit in the second quarter last year. Its June charge-off rate of 13.86 percent was the highest among the five banks that reported on July 15, including American Express Co., JPMorgan Chase & Co., Capital One Financial Corp. and Discover Financial Services.

JPMorgan, Citigroup, American Express, and Discover have also taken steps to stanch losses on credit-card asset-backed bonds, included removing poorly performing accounts from the pools and increasing the cash cushion that protects investors from losses by issuing new classes of securities and keeping them on their own books.

To contact the reporter on this story: Sarah Mulholland in New York at. Last Updated: July 22, 2009 11:37 EDT

Source:

1