Bank of America's Lewis Sees Rebound for Housing, U.S. Economy

June 20 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis, the leader of the world's second-biggest bank by market value, says U.S. growth is about to accelerate because the worst housing slump since 1991 is coming to an end.

``You'll see the economy begin to pick up in the third and fourth quarters'' and the slowdown in home sales is ``just about to be over,'' Lewis said in an interview yesterday in New York. For Bank of America, which relies on the U.S. for 90 percent of its revenue, the best potential for growth is at home, not in Europe or Asia, he said.

Lewis's views contrast with those of economists such as Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York. Roubini said there's a 50 percent chance the economy will be in a recession by the end of 2007. Lewis also is at odds with executives at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., which are growing faster outside the U.S.

``We do better when we play to our strengths, and our strengths are in the U.S.,'' said Lewis, who has spent at least $90 billion on acquisitions to turn Charlotte, North Carolina- based Bank of America into a company with almost 6,000 branches in 31 states.

While Bank of America plans to expand in Europe with credit cards, consumer lending and trading, the U.S. market remains the focus in consumer banking, where the company has 56 million individuals and small businesses as customers.

`Unprecedented Liquidity'

Lewis, 60, a native of Meridian, Mississippi who graduated from Georgia State University in Atlanta and started in banking as a credit analyst in 1969, also said debt-fueled corporate takeovers will continue for ``several more years.''

Banks and securities firms probably will earn more than the $12.2 billion in fees they received last year for arranging and financing leveraged buyouts, based on the rate of deals tracked by Bloomberg. Leveraged-buyout funds raised more than $250 billion for acquisitions since the start of 2006 and announced more than $1 trillion of takeovers. Dallas-based power producer TXU Corp. and First Data Corp., the world's biggest processor of credit card payments, are among the companies seeking almost $200 billion of loans in the next year to finance LBOs.

``You've got unprecedented liquidity,'' said Lewis. ``I've never seen anything like this.''

The increase in bond yields worldwide during the past month prompted Alan Greenspan, who retired in January 2006 after more than 18 years as chairman of the Federal Reserve, to say the increase in long-term interest rates may bring an end to the global boom in easy-access financing. Greenspan is now a consultant to Newport Beach, California-based Pacific Investment Management Co., which runs the world's largest bond fund.

Turning Down Deals

``It's liquidity that's driving the world,'' Greenspan said on June 13 to a conference in Mexico City. ``It will continue to be strong as long as real long-term interest rates stay low. This is not a permanent feature.''

Bank of America is turning down more deals because ``they've gotten very thin'' on pricing and they failed to contain the clauses that would safeguard lenders against defaults by companies purchased in leveraged buyouts, Lewis said.

``We at least for one, and I'm sure there are other banks, are starting to say `no' more than we were before,'' Lewis said. ``And it's not because we're out of money.''

LBO firms use a mix of cash from investors plus their own funds and debt secured by the target they buy to finance deals. They typically seek to expand companies or improve performance before selling them within five years to other funds or investors in initial public offerings.

Overseas Expansion

Bank of America last year retained its title as the second- biggest underwriter for syndicated loans, behind JPMorgan Chase & Co. The company also has provided so-called equity bridges to help buyout firms purchase companies. In such arrangements, banks buy equity in the target company, reducing the amount of money required from the private-equity firm. A bank typically sells its stake after the deal is completed, often to limited partners such as pension funds or university endowments.

Lewis's concentration on the U.S. isn't matched by his competitors. New York-based Goldman, the world's largest securities firm by market value, reported last week that 52 percent of its revenue in the second quarter came from outside the U.S. Lehman, also based in New York, produced 48 percent of its revenue internationally, up from 37 percent a year ago.

Citigroup Inc., the nation's biggest bank, gets about 50 percent of its revenue in the U.S. For JPMorgan Chase & Co., the third largest, it's about 75 percent. Both are based in New York.

Bank of America's U.S. focus has been costly for investors this year. Its shares, the second-best performer in the 24-member Philadelphia KBW Bank Index from 2000 to 2005, have dropped 5.2 percent, trailing Citigroup and JPMorgan.

Housing Drag

The housing market, which has been a drag on the U.S. economy every quarter since late 2005, will begin to improve in the next month or two, forestalling a recession, Lewis said. Job growth will lift home prices and spur construction early next year, he said.

Lewis's confidence contrasts with money managers such as Paul McCulley of Pimco.

``The housing-market recession ain't over,'' McCulley said yesterday at a Bloomberg News panel discussion in Beverly Hills, California. ``It's going to be a long, protracted recession.'' Pimco is a unit of Munich-based Allianz SE.

New-home starts probably will fall 21 percent this year, according to the National Association of Realtors. A record 0.58 percent of all mortgages entered foreclosure in the first quarter because borrowers couldn't make payments, the Mortgage Bankers Association reported earlier this month.

American West

At Bank of America, Lewis introduced a new mortgage program last month across the U.S. that eliminates fees normally charged for applications, appraisals and title insurance.

Lewis, who collects art from the American West, cited research by his company and a separate study by McKinsey & Co. that show the U.S. offers the greatest potential for new fees in the next decade, even more than Europe or Asia.

``Do you think you have a better chance of growing market share in the U.S. or going de novo in Russia?'' Lewis said. ``I think we'll do a better job here.''

To contact the reporter on this story: Will Edwards in New York at wiedwards@bloomberg.net.

To contact the editor responsible for this story: Erik Schatzker at eschatzker@bloomberg.net.