Bank of America net up

By Jonathan Stempel

NEW YORK (Reuters) - A surge in troubled loans overshadowed better-than-expected earnings at Bank of America (BAC.N), and the largest U.S. bank said it expects the credit situation to worsen, driving its shares down as much as 23 percent.

While first-quarter profit more than doubled, the results are unlikely 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 on January 1 led to an emergency federal bailout two weeks later. Bank of America has received $45 billion (31 billion pounds) 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 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.

In afternoon trading, the bank's shares were down $2.40, or 22.6 percent, at $8.20, after having roughly quadrupled in the previous two months. The KBW Bank Index .BKX slid 13 percent, and major U.S. stock indexes suffered broad declines.

Bank of America joined Citigroup (C.N), Goldman Sachs Group (GS.N) and JPMorgan Chase (JPM.N) 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?"