Nov. 13 (Bloomberg) -- Bank of America Corp., the nation's second-largest bank, may need to write down $3 billion in debt securities in the fourth quarter that have lost value because of defaults on subprime mortgages. Shares gained the most in almost five years on investor sentiment that the worst may be over.

Bank of America, based in Charlotte, North Carolina, may provide as much as $600 million to funds that bought debt from SIVs, Chief Financial Officer Joseph Price said at an investor conference today.

``As market conditions change and possibly worsen, there could be additional diminution in value,'' Price said in New York today, where the bank became the latest to disclose the wide ranging effects of credit market turmoil. ``There is complexity and difficulty in estimating the value of these positions, especially the collateralized debt obligations.''

Wall Street's largest banks and brokers will have to write down as much as $130 billion, including as much as $70 billion this year, because of the slump in subprime-related debt, Deutsche Bank AG analyst Mike Mayo said in a note yesterday. Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley led more than $40 billion in writedowns of assets as record U.S. foreclosures hit the housing market, Mayo noted.

Bank of America shares gained $2.29, or 5.2 percent, to $46.27, at 4:16 p.m. in composite New York Stock Exchange trading. It was the bank's biggest share gain since Oct. 15, 2002.

Markel Buys

``Mayhem is the time when stocks are on sale,'' said Tom Gayner, who manages $1.95 billion at Markel Gayner Asset Management Corp. in Glen Allen, Virginia. Markel Gayner added 502,500 shares during the third quarter, marking its first major purchase of the bank in 17 years, Gayner said.

``With a price-earnings ratio of 9.5 and a yield of more than 5 percent, it seems like a big buy to me,'' he said.

Citi Investment Research analyst Keith Horowitz today cut his fourth-quarter estimate for Bank of America by 41 percent to 85 cents a share, from $1.43, because of the possible writedowns and greater reserves for future loan losses, Horowitz wrote in a report today. Bank of America is expected to earn $1.12 a share in the fourth quarter, according to a survey of 18 analysts by Bloomberg.

``Given the recent market events in October, we believe it's likely Bank of America will need to take a large hit of around $3.3 billion due to market declines in the value of these collateralized debt obligation positions,'' Horowitz wrote in a report issued before Price's speech.

`Anyone's Guess'

``Where valuations will be at the end of the year is anyone's guess given these variables,'' Price said. ``This is further complicated by the impact of ratings and the behavior of the owners of the most senior tranches of certain structures, which add to an already complex evaluation.'' Tranches refer to the pieces of debt securities that are split up based on underlying credit standards.

The biggest part of the expected writedowns this quarter relate to $15.5 billion in ``liquidity support'' that the bank provided to asset managers on short-term funding for CDOs, Horowitz said. The bank disclosed its holdings of CDOs in a Nov. 9 regulatory filing.

Price said the bank's loan and high-yield commitments as of Sept. 30 totaled $28 billion. Since September the bank has had ``success in clearing some commitments, most within our marks and some within the original terms,'' he said. ``However I might note that the market took a decidedly negative tone just last Friday, which is evidence of how fast things change.''

Gains and Losses

Price said the bank's small-business lending unit reported ``much higher losses than we would like.'' The bank has ``become more judgmental in our underwriting'' by lowering lending limits and requiring businesses to be in operation longer before receiving loans. He did not disclose specific credit losses.

Separately, the bank has a potential gain of more than $30 billion from its ownership of China Construction Bank, Price said. Bank of America now owns 8.5 percent of the Chinese bank with the right to buy up to 19 percent. As of last week its present stake was worth $19 billion, compared to the original $3 billion investment in 2005.

Bank of America expects to take some profit from its position over the next few years, Price said, declining to provide details.

The bank also said it will realize a fourth-quarter pretax gain of $1.4 billion from the sale of Marsico Capital Management.

Bank of America bought LaSalle National Bank in October for $21 billion from ABN Amro NV, prompting the end of stock buybacks as the bank rebuilds capital. No further share repurchases are planned before the second half of 2008 at the earliest, Price said.

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

Last Updated: November 13, 2007 17:34 EST