BofA profit in free-fall

Bank of America (BAC) took a big hit in the fourth quarter. The nation’s largest consumer bank posted a 95 percent plunge in quarterly earnings, to $268 million, or a nickel a share, from a year ago as BofA added $1.33 billion to its reserves for credit losses. The bank posted a $5.44 billion loss to its trading account, as BofA took writedowns on its holdings of collateralized debt obligations, reversing the year-ago trading profit of $460 million. Bank of America also took a $400 million loss to support some of its Columbia Management cash funds that had invested in debt that subsequently defaulted or was downgraded.

“Our fourth quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy,” said CEO Kenneth D. Lewis. “Even given that environment, we certainly are not pleased with our performance. However, we are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half.”

Not everyone is optimistic about what’s going on at Bank of America. At Naked Capitalism, Yves Smith writes that it appears Bank of America may not stand behind the debt issued by Countrywide (CFC) - a move that could leave Countrywide debtholders with big losses once the Bank of America-Countrywide deal closes later this year. Investors in Countrywide probably feel they are all too familiar with losses as it is.