BANK OF AMERICA (BofA) beat expectations by posting $4.2 billion (€3.3 billion) in first-quarter earnings yesterday, helped largely by Merrill Lynch, the acquisition blamed for the precipitous collapse of BofA’s share price over the past six months.

Despite the strong results, BofA shares fell 19 per cent to $8.54 in early-afternoon trading as investors were spooked by the bank’s warning of deteriorating credit quality and its swelling provisions for additional credit losses.

“We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment,” said Ken Lewis, BofA chief executive.

For the quarter, Merrill contributed $3.7 billion in net income, and BofA also recorded a $1.9 billion pre-tax gain on the sale of China Construction Bank shares.

BofA issued $85 billion in first-time mortgages in the quarter, enough to prompt the bank to hire 5,000 additional workers, even as it has been on a campaign to reduce employees by 35,000 as a result of the Merrill deal.

Mr Lewis has faced criticism over the Merrill Lynch acquisition, for which he agreed to pay $29 per share last year after a frenzied weekend of negotiations and almost no due diligence.

In December, as Merrill’s losses mounted, Mr Lewis approached the US government, telling regulators that unless he received financial support, he would pull out of the deal.

In January, Merrill announced a disastrous fourth quarter, inciting fury among many BofA shareholders, some of whom are agitating for Mr Lewis to be ousted at next week’s shareholder meeting.

One of the largest unions in the US is trying to oust Mr Lewis as part of a drive to organise tens of thousands of employees across the financial services industry.

The Service Employees International Union, which has 2 million members, released a video last week urging BofA shareholders to “fire Ken Lewis”.