By Will Edwards
June 20 (Bloomberg) -- The worst U.S. housing slump in 16 years will begin to ease in the next month or two, and job growth will lift home prices and spur construction early next year, Bank of America Corp. Chief Executive Officer Kenneth Lewis said.
``The drag stops in the next few months,'' Lewis said in an interview yesterday in New York. ``It's just about to be over. We're seeing the worst of it.''
Economic growth has been crimped every quarter since late 2005 by the housing slowdown, and new-home starts probably will fall 21 percent this year, according to the National Association of Realtors. A record number of Americans faced the risk of foreclosure in the second quarter because they couldn't make payments, the Mortgage Bankers Association reported last week.
``We do not see a recession,'' Lewis said. ``Because that drag stops, you'll see the economy begin to pick up in the third and fourth quarters.''
Bank of America relies on the U.S. for more than 90 percent of its revenue, a larger share than New York-based rivals Citigroup Inc. or JPMorgan Chase & Co. Bank of America has a network of almost 6,000 branches, the biggest in the U.S.
As head of the second-largest U.S. bank by assets, Lewis, 60, has a sense of consumer demand in the 31 states in which Charlotte, North Carolina-based Bank of America has branches. Lewis's confidence contrasts with money managers such as Paul McCulley of Pacific Investment Management Co..
Housing Starts
``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, based in Newport Beach, California, runs the world's biggest bond fund.
Housing bears point to data such as yesterday's Commerce Department report showing that new home starts fell in May for the first time in four months. The average rate on a 30-year fixed-rate mortgage is the highest in more than a year, putting pressure on first-time homebuyers.
UCLA Anderson Forecast released a report yesterday predicting the decline in housing prices will persist into 2009.
``Where do we stand now at this point in the correction?'' Eric Green, chief market economist at Countrywide Financial Corp.'s securities unit, said at the Bloomberg panel discussion. ``It has not run its course completely. There is probably more downside in terms of home prices.''
Countrywide, based in Calabasas, California, is the biggest U.S. mortgage lender. It made about $115 billion of new loans in the first quarter. Bank of America ranked fifth with about $43 billion, according to National Mortgage News.
New Mortgage
Bank of America began offering a new mortgage nationwide last month that eliminates fees normally charged for applications, appraisals and title insurance. Last year, it introduced free online stock trades for customers who meet a target for assets invested with the bank. Lewis also plans to take market share in small-business lending and money management for the wealthy.
Shares of Bank of America, the second-best performer in the 24-member Philadelphia KBW Bank Index from 2000 to 2005, have dropped 5.3 percent this year, trailing Citigroup and JPMorgan.
Goldman Sachs Group Inc., the world's largest securities firm, last week reported that 52 percent of its revenue came from outside the U.S., and Chief Financial Officer David Viniar said the firm's ``business is growing faster outside the U.S. than in the U.S.'' Lehman produced 48 percent of its revenue internationally, up from 37 percent a year ago.
While Bank of America has plans to expand in Europe in credit cards, consumer lending and trading, the U.S. market remains the focus in consumer banking. Lewis cited research by Bank of America and a separate study by McKinsey & Co. that he said shows the U.S. offers the greatest potential for new fees in the next decade, even more than Europe or Asia.
``You've got the hand that you're dealt,'' Lewis said. ``We do better when we play to our strengths, and our strengths are in the U.S.''
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