Following other big banks’ better-than-expected results revealed the past week, banking giant Bank of America posts a $2.81 billion income for the 1st quarter of 2009 after paying preferred dividends, or 44 cents per share. This overshoots analysts’ forecast of 4 cents per share.

The Charlotte-based bank warns however, that its troubled loans continue to rise even as it set a $13.4 billion provision for credit losses for the same period. The bank’s problem loans more than tripled to $25.7 billion from $7.8 billion a year ago, with losses from the credit card services division amounting to $1.8 billion. BofA CEO Ken Lewis acknowledges that he cannot see an end to the bank’s current credit situation as yet.

“Make no doubt about it, credit is bad, and we believe credit is going to get worse before it will eventually stabilize and improve,” Lewis said in a conference call.

Following this announcement, investors’ waning confidence in the health of the banking industry became evident, driving the stock market down on Monday, in its worst showing in 6 weeks. Bank of America’s stock led the overall market plunge, dropping sharply by 24.3% or $2.58, while Citigroup stock went down 19%, Wells Fargo & Co. 16%, and JPMorgan Chase 11%.

As with other banks’ reported earnings, Bank of America’s income was largely bolstered by trading activities in the market including bonds. The first quarter results also reflected revenue from the banks two acquisitions, Merrill Lynch and Countrywide Financial.

However, the strong bond trading during the first three months of the year and the huge revenues that came with it, is not expected to be sustained into the next months. Moreover, recession-driven credit problems, particularly in the areas of mortgage financing and the credit card industry, are expected to worsen this year.

With Bank of America right in the heart of these consumer businesses, the bank has set aside another $6.4 billion as additional reserves for future credit losses.

While the bank had earlier benefited from the Treasury Department’s TARP fund by some $45 billion, CEO Lewis now emphasizes that Bank of America no longer needs any additional capital from the government, and intends to repay the government as soon as possible.

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