BofA likely to join stampede of banks raising capital as earnings slump 77 percent

Bank of America is reportedly looking for as much as $10 billion in fresh capital as it seeks to bolster its finances as the mortgage slump takes it toll on the heart of the bank's business -- consumers and small business owners.

The bank is considering the possible sale of part of its stake in China Construction Bank, that nation's second-largest bank, the Financial Times reported ahead of Monday's release of BofA's first-quarter earnings. The newspaper also said BofA will exercise its option to purchase additional shares in the China bank at prices below the current market price.

Some have estimated the bank's current 9 percent stake in China Construction Bank could be worth more than $15 billion. BofA purchased the stake in 2005 for $2.5 billion.

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The timing might be right to shed the stake, given expectations among some observers that China's economy will slow after the Olympics this year.

The Financial Times also reported Monday that the bank is in talks to sell its prime brokerage unit to BNP Paribas, which also owns San Francisco-based Bank of the West.

BofA (NYSE: BAC) is already moving to raise $6 billion in preferred stock. California's largest bank also reaped hundreds of millions of dollars from the initial public offering of San Francisco-based Visa (NYSE: V).

And there's also speculation that the bank's hefty quarterly dividend of 64 cents, with a current yield of 6.8 percent, will be scaled back. That's a move taken by other banks that have raised capital including Citigroup (NYSE: C), Wachovia (NYSE: WB) and National City (NYSE: NCC)

"If things really got bad, then we would look at the dividend," said Chairman and CEO Ken Lewis on Monday.

The Charlotte, N.C., bank reported Monday that it earned $1.21 billion, or 23 cents per share, in the first quarter compared with a profit of $5.26 billion, or $1.16 per share, in last year's first quarter.

Analysts, on average, had expected the bank to earn 41 cents per share in the latest quarter.

"These results clearly did not meet our expectations," Lewis said. "The weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance."

The bank set aside a stunning $4.78 billion to cover potential loan losses in its home equity, small business and home-builder portfolios. That should finally lay to rest industry chatter that this is a problem limited to subprime mortgage borrowers.

Not that those borrowers didn't contribute to the bank's weak quarter and will continue to drag on the bank's performance as it acquires Countrywide Financial (NYSE: CFC) later this year. The bank incurred trading losses of $1.31 billion in the first quarter that were fueled by writedowns in collateralized debt obligations and leveraged loans. In last year's first quarter, the bank generated trading-related gains of $1.66 billion.

Net interest income in the latest quarter rose 20 percent to $10.29 billion from $8.6 billion in the year-ago period. Noninterest income plunged 29 percent to $7.01 billion from $9.89 billion a year ago.

Bank of America's public relations woes also mounted Monday as the California Reinvestment Coalition, the Community Reinvestment Association of North Carolina and the Service Employees International Union said they will hold a press conference and lunch in Charlotte April 22 to criticize Countrywide's lending practices and BofA's rising bank fees and credit charges.

BofA, which holds its annual meeting in Charlotte April 23, will likely encourage shareholders to look beyond the current turmoil in financial services.

"We are continuing to invest in growth initiatives across the company, and believe our core strengths -- including our diverse income stream, liquidity and capital -- put us in a strong position to withstand the jolts to the system and emerge even stronger when conditions improve," Lewis said.