Fed Lowers Rate to 3.5%; BofA, Wachovia Profits Freefall

The Federal Reserve this morning announced a cut in its key interest rate of three-quarters of a point but it wasn’t enough to stop a plunge in the Dow Jones Industrial Average following news that Bank of America’s earnings fell 95 percent in the fourth quarter.

The Fed lowered its federal funds rate to 3.5 percent in advance of its monthly meeting scheduled for Jan. 29-30. The Associated Press reports that the 75-basis point cut is the largest single reduction made by the Fed since 1991. The central bank also lowered its discount rate by three quarters of a point to 4 percent.

Many banks responded quickly to the Fed’s actions, lowering their prime lending rate from 7.25 percent to 6.5 percent.

The financial markets were already in a precarious state this morning as many foreign indices had seen broad sell offs over the weekend. Then the news from BofA set off declines across industry sectors.

BofA reported net income of $268 million, down 95 percent, on revenues of $12.67 billion, a 31 percent decline. Wachovia Bank reported its income fell nearly 100 percent in the quarter, from $2.3 billion to $51 million.

The Dow Jones average was down more than 400 points early this morning but had rebounded more than 200 points in mid morning trading. Virtually all bank stocks were down.