Bank of America net up, shares sink on bad loans

By Jonathan Stempel

NEW YORK (Reuters) - A surge of troubled loans overshadowed better-than-expected earnings at Bank of America Corp, and the largest U.S. bank said it expects the credit situation to worsen, driving its shares down 24.3 percent.

While first-quarter profit more than doubled, the results failed to end calls by investors for Kenneth Lewis to step down as chief executive or give up the post of chairman.

The bank's purchase of Merrill Lynch & Co on January 1 led to an emergency federal bailout two weeks later. Bank of America has received $45 billion of taxpayer money, and some analysts believe it needs more.

Lewis on a conference call said "we absolutely don't think we need additional capital," but he admitted conditions were tough as the recession deepens and unemployment rises. Nonperforming assets surged 41 percent in the quarter to $25.74 billion.

"Make no doubt about it, credit is bad, and we believe credit is going to get worse," Lewis said.

Shares of Bank of America closed down $2.58 at $8.02, the biggest percentage decline since Feb 27 when Citigroup Inc got its latest government bailout. Monday's decline wiped out about $16.5 billion of market value. Shares of Bank of America had roughly quadrupled in the previous two months.

Bank of America joined Citigroup Inc, Goldman Sachs Group Inc and JPMorgan Chase & Co in posting better results than in the fourth quarter, but some improvement came from trading gains and accounting moves.

"I don't see anything that makes me think all of a sudden people are going to take the pressure off Lewis," said Walter Todd, a portfolio manager at Greenwood Capital Associates LLC, which invests $650 million. "The biggest question I have is, what is going on with these nonperforming assets?"