July 21 (Bloomberg) -- Bank of America Corp., the biggest U.S. consumer bank and home lender, said second-quarter profit fell less than analysts estimated and predicted the purchase of Countrywide Financial Corp. will add to earnings this year.

Bank of America climbed as much as 10 percent in New York trading today after the Charlotte, North Carolina-based company said net income declined 41 percent to $3.41 billion, or 72 cents a share, from $5.76 billion, or $1.28, a year earlier. That beat the 54-cent average estimate of analysts surveyed by Bloomberg.

Four of the nation's five biggest banks have now reported better-than-estimated results, sparking a rally in financial shares that lifted Bank of America 48 percent in three days last week. Chief Executive Officer Kenneth Lewis completed the $2.5 billion purchase of Countrywide on July 1, betting that the bargain price and a rebound in home sales will make up for the current record wave of mortgage defaults.

``Countrywide will go down as a good, bold acquisition,'' said Bernie McGinn of McGinn Investment Management in Alexandria, Virginia, which holds 55,000 Bank of America shares, before results were released.

Bank of America rose $2.67 to $30.16 at 9:38 a.m. in New York Stock Exchange composite trading today and climbed as high as $30.36. The shares closed at $27.49 last week.

Countrywide

The bank said Countrywide will add to profit this year, and that cost savings will be ``significantly'' more than the $670 million projected in January. Countrywide lost $2.3 billion in the second quarter because of almost $4 billion in loan losses; those results weren't part of the bank's earnings, since the purchase wasn't completed until the start of the third quarter. When Bank of America announced the transaction in January, it said Countrywide's impact on earnings would be ``neutral.''

``That's very good news,'' said Mary Jane Matts, a portfolio manager at Fifth Third Asset Management in Cleveland with about $22 billion in assets under management, including Bank of America shares. ``If there was a cascading here of additional bad news for Countrywide, I think you'd see the stock moving the other way and about the same magnitude.''

Analysts may reduce their estimates on how much Bank of America needs to raise in new capital because of the new earnings report, KBW Inc. analyst Jefferson Harralson said in a Bloomberg TV interview today. Last week he said the bank would need an additional $10 billion this year.

Credit Quality

The world's biggest banks and brokerages have disclosed $447 billion of writedowns and credit losses because of collapsing prices in U.S. mortgage markets. The companies have raised more than $331 billion to replenish capital, with Bank of America tapping public investors for almost $21 billion this year, according to data compiled by Bloomberg.

Results included $3.62 billion in net charge-offs, up 33 percent from the quarter ended March 31 as credit quality weakened in markets where home prices have declined the most, the bank said. The provision for future bad debts was $5.8 billion, triple the year-earlier amount and a 3 percent decrease from the first quarter of this year.

``Outside of real estate-related products, our operating results were quite good virtually across all business segments,'' Lewis said in a statement.

Consumer Banking

Profit at the consumer bank, the company's largest unit, declined 66 percent to $812 million, held back by the highest unemployment rate since at least 2005 and the worst U.S. housing market since the 1930s. Bank of America said it can't collect payments on 5.96 percent of its $187 billion credit-card portfolio as of June 30, up from 5.2 percent at the end of the first quarter. Citigroup Inc. and JPMorgan Chase & Co. last week also blamed higher charge-offs for lower profit on credit cards.

Home-equity loans produced losses of $923 million, up 86 percent from the first quarter because of declining home prices in Arizona, California, Florida and Nevada.

The bank's net interest margin, the difference between what it pays on deposits and the rates earned on loans and securities, widened to 2.92 percent from 2.73 percent in the first quarter and 2.59 percent in the year-earlier period. Interest-rate cuts by the Federal Reserve in the past year have curtailed borrowing costs for U.S. banks.

The corporate and investment bank earned $1.75 billion, a 3.2 percent increase from a year earlier. Writedowns on securities fell to $645 million from $1.47 billion in the first quarter.

Renewed Commitment

After replacing the investment banking unit's leader last year and cutting 650 jobs this year, Lewis affirmed his commitment to the business by hiring more than a dozen analysts and investment bankers from other Wall Street firms this year. ``Near-record investment banking income partially offset'' writedowns of securities, the bank said in the statement.

The bank's wealth management division had a profit of $573 million, compared with $576 million in the year-earlier period. Assets under management, which include U.S. Trust and Columbia mutual funds, increased 4.1 percent to $589 billion.

Citigroup, JPMorgan, and Wells Fargo & Co. reported second- quarter results last week that exceeded analysts' estimates. Citigroup, the biggest bank by assets, posted a smaller-than- estimated loss of $2.5 billion. JPMorgan, ranked first by market value, said profit fell 53 percent. Citigroup and JPMorgan are based in New York.

Rival Results

Wells Fargo, the second-largest home lender, posted a 23 percent earnings decline. The bank is based in San Francisco. Wachovia Corp. of Charlotte, North Carolina, the fourth-biggest bank by assets, has said it may report a second-quarter loss of $2.6 billion when it discloses results tomorrow.

Fitch Ratings downgraded Bank of America this month to A+ from AA, citing increased losses from credit-card and home- equity lending. The company may lose $4.5 billion from Countrywide's $27 billion of option adjustable-rate mortgages, Harralson of KBW said in a July 18 report.

Option-ARMs, which Bank of America doesn't offer, let borrowers skip part of their payment and add the sum to their principal. Bank of America also inherits investigations by U.S. regulators and lawsuits into whether Countrywide's lending practices deceived borrowers.

Speed Bumps

``There are clearly going to be bumps over Countrywide for the next three or six months, and that's definitely going to have an impact,'' said Cassandra Toroian, a former bank analyst and president of Bell Rock Capital in Paoli, Pennsylvania, which holds Bank of America shares. ``Longer term, it's a smart buy. They built the problems into the price of the deal,'' she said in an interview before the release.

Bank of America's Tier 1 capital ratio -- a benchmark regulators use to monitor a lender's ability to withstand loan losses -- rose to 8.3 percent from 7.5 percent at the end of the first quarter.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina, at dmildenberg@bloomberg.net.

Last Updated: July 21, 2008 09:42 EDT