BANK of America to End Auto Leasing
Wednesday, August 15th 2001, 12:00 am
By: News On 6
CHARLOTTE, N.C. (AP) _ Bank of America will take a $1.25 billion after-tax charge in the third quarter to get out of the car leasing and subprime real estate lending businesses.
The nation's No. 3 bank holding company plans to liquidate its $26.3 billion subprime portfolio over the next seven to nine months. The bank said it will abandon the car leasing business immediately, although it said it planned to manage its $9.7 billion portfolio to the end of the term.
``Both of these businesses have very volatile earnings streams, have become unattractive from a risk-reward standpoint and have not produced required rates of return,'' said Kenneth Lewis, chairman and chief executive officer of the Charlotte-based bank.
Lewis told analysts on a conference call Wednesday that shareholder value was one of the chief factors behind the decision.
``We have said before we want to be able to go full-speed ahead when the economy improves,'' he said. ``We hope these actions today will help us move ahead sooner.''
The bank has found buyers for its entire subprime real estate branch network, and was seeking a buyer for its servicing business.
An unexpected dip in the price of vehicles coming off lease has translated into large losses for banks and leasing companies. Estimates made three or four years ago of a leased vehicle's value now can be off by thousands of dollars.
Chief financial officer Jim Hance estimated the bank's loss on each leased vehicle at about $2,000. ``That business is a non-keeper,'' he said on the conference call.
While it's also been a profitable business for lenders, subprime lending _ writing loans for risky borrowers _ also has been a factor in seven of the last 19 bank failures, according to the Federal Deposit Insurance Corp.
Among them was the collapse last month of Superior Bank in suburban Chicago.
Last month, Bank of America reported second-quarter earnings of $2.02 billion, or $1.24 a share, in the three months ended June 30, down from $2.063 billion, or $1.23 a share, in the same period a year ago.
Shares were up 69 cents Wednesday at $63.25 on the New York Stock Exchange.