Bank of America will likely have to write off around three billion dollars in troubled debt related to subprime mortgages, a senior executive warned Tuesday.
Subprime home loans, mortgages granted to people with a patchy credit history, helped fuel a years-long US housing boom, but the boom petered out in early 2006 and many subprime borrowers are struggling to pay their mortgages.
Bank of America's chief financial officer Joe Price said the bank expects to write off three billion dollars in pre-tax debt largely linked to such mortgages during the fourth quarter, according to a securities filing.
The filing included a copy of a speech Price made earlier Tuesday at a financial conference in New York.
"These are not normal times," Price said, according to the transcript.
Bank of America's top financial officer also cautioned that the financial giant might have to absorb further write-downs if market conditions worsen.
Price also disclosed Bank of America expects to set aside 600 million dollars to support some of its market positions and to help bolster the position of money market mutual funds.
Bank of America's CFO said the company had also earmarked 300 million dollars to cover another troubled investment.
Price issued the snapshot on Bank of America's financial health almost a month after the bank reported a sharp slowdown in third quarter profit to 3.7 billion dollars due to swelling investment losses.
The Charlotte, North Carolina-based financial titan's latest quarterly earnings fell 32 percent from 5.4 billion dollars a year earlier due to mortgage-related losses and dislocations in the US credit markets.
Despite its troubled US investments, one of Bank of America's China-related bets could yield a handsome payoff.
Price said Bank of America's three billion dollar investment in the China Construction Bank in 2005 had surged in worth to 19 billion dollars, marking a paper gain of 16 billion.
He said Bank of America also holds an option to boost its ownership stake in the Chinese bank from 8.5 percent to a 19.9 percent holding, and that the option is worth around 16 billion dollars.
