Bank of America Corp posted a wider-than-expected third-quarter loss as improvement in its Merrill Lynch investment banking unit failed to offset consumer credit woes, sending its shares down 4.5 percent .

The results underlined how the nation's largest bank, which has received two taxpayer bailouts totaling $45 billion, remains on a government respirator after acquiring Merrill Lynch & Co and mortgage lender Countrywide at the height of the financial crisis. The bank suffered $9.6 billion in credit losses in the quarter.

In a twist, Merrill's investment banking operations injected an adrenaline shot to Bank of America's results, contributing $2.2 billion in profits.

The adverse credit picture continues to weigh on the firm and there's really a poor earnings prospect until they can turn that around, said Gary Townsend, chief executive of investment firm Hill-Townsend Capital.

Amid the bank's troubles, it must also find a new chief executive. CEO Kenneth Lewis, 62, has said he will retire at year-end. Under pressure from the Obama administration's pay czar, Kenneth Feinberg, the bank is not paying Lewis any compensation for 2009, although he may still receive $125 million of retirement benefits and accrued pay.

Bank of America reported a net loss of $1 billion, or 26 cents per share, for the third quarter, compared with net income of $1.18 billion, or 15 cents per share, in the same period last year at the height of the financial crisis.

Analysts' average forecast was a loss of 21 cents per share, according to 15 analysts polled by Thomson Reuters I/B/E/S.

Bank of America shares were down 4.5 percent to $17.29 in premarket trading. The shares rose 29 percent during third quarter, keeping pacing with the broader KBW Banks Index, but are still down 23 percent over the past 12 months.

CREDIT WORRIES

Expenses grew at a faster rate than revenue during the quarter, the Charlotte, North Carolina-based bank said.

Revenue, net of interest expense, increased 32 percent to $26.4 billion, while noninterest expenses climbed 39 percent to $16.3 billion, due largely to higher personnel costs.

The bank set aside $11.7 billion during the quarter for credit losses, $1.7 billion less than in the second quarter but $5.3 billion more than in the 2008 third quarter.

Bank of America said that while those reserves and credit losses are still high, the growth is slowing. U.S. consumers comprise roughly 60 percent of the bank's loan portfolio, from home mortgages to credit cards.

Nonperforming assets climbed to $33.8 billion in the third quarter from $31 billion in the second quarter, slower quarter-over-quarter growth than in previous periods in the economic downturn.

Obviously, credit costs remain high, and that is our major financial challenge going forward, Lewis said in a statement.

Noninterest income spiked to $14.6 billion from $8 billion a year earlier, due largely due to the addition of Merrill Lynch's brokerage and investment banking businesses.

Bank of America last posted a quarterly loss in the 2008 fourth quarter. It was the company's first quarterly loss in 17 years. (Reporting by Joe Rauch and Elinor Comlay; editing by John Wallace)

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