Oct. 6 (Bloomberg) -- Bank of America Corp., the bank that bought Countrywide Financial Corp., halved its dividend and plans to sell $10 billion in common shares after third-quarter profit fell 68 percent. The stock declined in late trading.

Profit dropped to $1.18 billion, or 15 cents a share, in the quarter ended Sept. 30, from $3.7 billion, or 82 cents, in the same period last year, the Charlotte, North Carolina-based company said in a statement.

Chief Executive Officer Kenneth Lewis took advantage of the financial industry's disarray to buy Countrywide, the largest U.S. home lender, and last month agreed to buy Merrill Lynch & Co., the world's largest securities brokerage, for $50 billion. Lewis said the outlook for the economy has darkened.

``We've seen in the last 45 days things worsening in the economy and a view that the recession is going to be a little deeper than we thought,'' Lewis said today on a conference call. ``It's going to take some more time and some more pain.''

Bank of America added almost $2 billion to the allowance for loan and lease losses as overdue payments spread from home equity and homebuilder credits to first mortgages, consumer lending and credit cards. Credit quality deteriorated most in California and Florida, the bank said. Countrywide, the biggest U.S. home lender, was bought on the first day of the quarter.

Bank of America dropped 7.2 percent to $29.91 as of 4:27 p.m. in extended trading. During the regular session, the bank dropped 6.6 percent, and it's down 22 percent for the year.

Analysts predicted profit of 61 cents a share for the quarter, the average of 20 estimates compiled by Bloomberg.

Share Sale

The share offering has already started, according to a separate statement, with the bank and Merrill Lynch managing the sale.

Raising capital through share sales is important for the bank to achieve a Tier 1 capital ratio of about 8 percent given the weak economy, Lewis said. The bank ended the quarter with a 7.5 percent ratio with the ratio expected to reach 8.3 percent after the share sales.

Tier 1 capital is a measurement of a bank's ability to absorb loan losses. Banks with ratios of more than 6 percent are considered ``well-capitalized.'' Merrill Lynch has also been battered by the global credit crunch, suffering about $52 billion in credit losses and writedowns.

Bank of America plans to pay a 32-cent quarterly dividend in December, compared with 64 cents previously, with the money saved adding more than $1.4 billion to capital each quarter.

Results by Unit

The bank reported $3 billion in managed net losses for the quarter from its credit-card unit. The investment bank's income rose 22 percent to $474 million. The unit took $952 million in charges tied to collateralized debt obligations and $327 million in writedowns tied to leveraged loans and commercial mortgages. The business also had $190 million in losses on a commitment to buy back auction-rate securities from clients.

Retail deposits advanced $56 billion to $586 billion in the quarter, boosted by the addition of $35 billion from Countrywide. Much of the increase occurred in September from the ``flight to quality,'' in which depositors seek out banks seen as safe places to store cash as other institutions fail, Chief Financial Officer Joe Price said on a conference call.

Bank of America will assume $21 billion in debt owed by Countrywide, Price said, marking the lender's first confirmation of its plans for the holdings. ``It's been very consistent with deals we've done in the past,'' Price said.

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: October 6, 2008 18:54 EDT