BofA’s earnings off 77 percent

CHARLOTTE, N.C. – If the 77 percent drop in Bank of America’s first-quarter earnings is any indication, the economy may have a long way to go before it works out the problems that began with the subprime mortgage crisis.

The nation’s largest retail bank on Monday quintupled the money it set aside for loans that go sour and hinted that consumer weakness and the housing slump means that things will not get better for it, or for the economy, for some time.

“I think first it would be too early to strike up the band and sing happy days are here again,” Chief Executive Ken Lewis said on a conference call with analysts during which he said the situation in the capital markets was particularly tough in March.

Like many other banks, Charlotte-based Bank of America is besieged on two sides. Its bread-and-butter banking business is ailing because with home prices flagging, more people and real estate developers are failing to repay their loans.

The credit crisis is also hobbling the value of many bank investments.

Last week, crosstown rival Wachovia Corp. said it lost $393 million in the first quarter because of bad credit and tumultuous financial markets. Washington Mutual Inc. lost $1.1 billion.

Wells Fargo & Co.’s profit fell 11 percent, JPMorgan Chase & Co.’s profit slid 50 percent, and Citigroup Inc. posted a loss of $5.1 billion.

“It still remains unclear what ramifications the housing downturn, higher energy costs and subprime crisis will ultimately have and how long the downturn will persist,” Chief Financial Officer Joe Price said on a conference call with analysts.

If the economy doesn’t turn around – and few expect it will – more troubles could loom for Bank of America. It’s set to acquire distressed subprime mortgage lender Countrywide Financial Corp. later this year, and it holds the nation’s biggest credit card business and retail branch network.

“Earnings for the first half remain questionable and, at this stage, the focus must be on positioning the bank for the eventual recovery of the economy,” said Walter O’Haire, senior analyst with Celent, a Boston-based financial research and consulting firm.

In January, Bank of America agreed to acquire Calabasas, Calif.-based Countrywide Financial in a deal valued at about $4 billion in stock when it was announced. Countrywide is among the dozens of mortgage lenders that have battled a spike in mortgage defaults and foreclosures.

Standard & Poor’s analyst Stuart Plesser wrote in a research note this month that the proposed acquisition of Countrywide Financial and Bank of America’s large exposure to consumer credit “increases (Bank of America’s) risk profile in a weakened consumer credit market environment.”

Its write-downs, largely due to more and more people missing payments on their credit cards and home loans, led Bank of America to report a 77 percent decline in first-quarter profit of $1.21 billion, or 23 cents a share, on $17 billion in revenue. That compared with net income of $5.26 billion, or $1.16 a share, a year earlier on $18.16 billion in revenue.

In other first-quarter earnings released Monday:

•Netflix said earnings rose 36 percent as its subscriber base grew and operating expenses declined. The Los Gatos, Calif.-based online DVD rental service earned $13.4 million, or 21 cents per share, in the quarter, compared with $9.9 million, or 14 cents per share, a year ago. On an adjusted basis, Netflix earned 23 cents per share. Revenue rose 7 percent to $326.2 million from $305.3 million.

•Texas Instruments Inc. said profit rose 28 percent despite weaker sales of chips for high-end cell phones, but the company offered a cautious outlook for the second quarter due to the slowing economy. The leading maker of chips for cell phones said it earned $662 million, or 49 cents per share, in the first quarter this year, compared with $516 million, or 35 cents per share, a year ago. Excluding a tax gain, the most recent profit would have been 43 cents per share. Revenue rose 3 percent, to $3.27 billion, a tick below analysts’ forecast of $3.28 billion.

•Increasing its global presence is paying off for oilfield services provider Halliburton Co., whose income rose nearly 6 percent on growing business in the Middle East, Asia and Latin America. Halliburton said it earned $584 million, or 64 cents per share, compared with a year-earlier profit of $552 million, or 54 cents per share. Revenue rose to $4.03 billion from $3.42 billion a year earlier.

•Barbie maker Mattel Inc., struggling with higher costs and a big drop in sales of its Fisher-Price toys following last year’s lead-related recalls, disappointed Wall Street with a $46.6 million loss. Mattel, based in El Segundo, Calif., lost 13 cents per share in the three months ended March 31 compared with last year’s quarterly profit of $12 million, or 3 cents per share. Its sales fell 2 percent to $919.3 million from $940.3 million in the year-ago period, despite the benefits of a weak dollar that helped boost sales overseas.

•Toymaker Hasbro Inc. reported a 14 percent profit increase that beat analysts’ expectations on strong growth in its Transformers and Littlest Pet Shop brands. The world’s second biggest toy company said it earned $37.5 million, or 25 cents per share, for the three months ended March 30, up from $32.9 million, or 19 cents per share, during the same quarter a year ago.

•Merck & Co. reported it nearly doubled its profit, with the drugmaker citing a $1.4 billion payment from a partner drug company and sales up slightly from last year. The maker of allergy and asthma pill Singulair and cervical cancer vaccine Gardasil posted net income of $3.3 billion, or $1.52 per share, for the January-March period, up from $1.7 billion, or 78 cents a share, a year ago. Revenues totaled $5.82 billion, up 1 percent from $5.77 billion in the first three months of 2007.