Bank of America warned investors that the fourth quarter would be ugly. Today brings confirmation.

The nation's biggest retail bank recorded net income of $268 million, or five cents per share, for the fourth quarter. That's a 95 percent drop from the prior year, when it earned $5.3 billion, or $1.16 per share. It also is well below analysts' expectations for 21 cents per share in profit.

Revenue fell 31 percent to $12.7 billion.

Bank of America wrote down $5.3 billion from investments in collateralized debt obligations, significantly more than the $3 billion it expected.

"Our fourth-quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy," said Bank of America's chief executive Kenneth Lewis in a statement. "Even given that environment, we certainly are not pleased with our performance. However, we are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half."

Investors may now be even more concerned about Bank of America's plan to buy the troubled Countrywide Financial for $4 billion in stock. Bank of America stock slid 6 percent this morning, while Countrywide fell 12 percent.

Wachovia Bank also had bad news to share with investors on what is already shaping up to be an ugly day for the markets. The bank's fourth-quarter earnings plummeted 98 percent to $51 million, or three cents per share. Excluding certain one-time items, it earned 8 cents per share, which disappointed Wall Street analysts who on average had predicted 33 cents per share in profit.

Revenue fell 17 percent to $7.2 billion.

"The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially," said chief executive Ken Thompson in a statement. "We took active and prudent steps in the second half of the year to deal with the market disruption and credit deterioration, and we believe this allows us to move forward from a position of strength despite the uncertain economic environment."

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