In an unexpected announcement, Bank of America (BAC: 32.22, 0.00 (0.00%)) released their 3rd quarter earnings results and announced that they will be cutting their dividend and issuing new common shares to raise capital.  After an interview on CNBC yesterday, CEO Ken Lewis stated that a dividend cut wasn’t completely out of the picture, and that they would do what was best for the company going forward.  Bank of America was obviously in worse condition than he made it seem, as they not only had to cut their dividend, but they also sold $10 billion in new capital as management said that “recessionary conditions” are causing problems in the bank.  For the past couple of weeks, Bank of America looked as if it may be the strongest bank after the acquisition of Merrill Lynch (MER: 24.20, 0.00 (0.00%)), but obviously more capital was needed than many analysts originally thought.

Bank of America decided to release their 3rd quarter earnings results more than 2 weeks before they were expected to.   They reported net income of $1.18 billion, or 15 cents per share, which was 68% lower than last year’s results of $3.70 billion, or 82 cents per share.  The results were much lower than analyst expectations of 62 cents per share, which were the average pole from Thompson Reuters.  Losses on mortgages and credit cards weighed down the results as its provisions for credit losses were $6.45 billion, up from $5.83 billion in the second quarter.  Net charge offs grew 20% to $4.36 billion compared to the 2nd quarter.  Non performing assets were $13.3 billion, or 1.42% of total loans, leases, and foreclosed properties.  The results were much worse than analyst had expected which sent shares down over 10% in after hours trading on Monday.

Along with the earnings announcement, B of A also announced that they will be cutting their dividend by 50% from $0.64 to $0.32.  This move will add more than $1.4 billion in capital each quarter and over $5.6 billion in capital each year.  The company also announced that they will be selling $10 billion in common shares to raise capital.  Management is hoping that these moves will help keep the bank’s Tier 1 capital ratio near 8% and cover the higher than anticipated credit losses.  Bank of America’s Tier 1 ratio was 7.5% at the end of September.  A tier 1 ratio of 6% is required by regulators.

In a recent Wall Street Journal Article, CEO Ken Lewis was quoted while speaking with analysts:  “It’s a damn disaster… We are making every good loan we can find” but “it’s not going to be pretty for awhile.”  In another release, Mr.