Consumer Credit Quality Continues To Deteriorate at Bank of America

Bank of America’s (BAC: NYSE) stock, which shed 6.6% during regular market hours, was recently shedding another 7% after the company reported weak third-quarter earnings. In addition to the company announcing a dividend cut, it also said that consumers are experiencing higher levels of financial stress. You think?From the company’s press release: Bank of America Announces Third Quarter Earnings and Capital Raising InitiativesIncreased loss and delinquency trends first experienced in the home equity and homebuilder portfolios have now spread into the first mortgage, unsecured consumer lending and credit card portfolios. Deterioration has been more pronounced in California and Florida, which have been hit harder by home price depreciation and rising unemployment than in other markets. Commercial losses in sectors other than real estate and small business also increased, but remain below normalized ranges.The company also said that it is raising capital to weather this most uncertain storm. Bank of America’s CEO, Kenneth Lewis, said that this is one of the toughest environments he has seen during his career.These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,” said Kenneth D. Lewis, chairman and chief executive officer. “We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months. We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago. We now believe it is important to be at or near our 8 percent Tier 1 capital ratio target given the recessionary conditions and outlook for still weaker economic performance which we expect to drive higher credit losses and depress earnings. We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability.The penultimate sentence in the second quote makes it very clear. Things are going to get worse before they get better. Consumers who are not in tip-top shape should continue to expect more credit-limit decreases and account closures. Fasten your seat belts.