NEW YORK (MarketWatch) -- Bank of America said Monday its third-quarter profit slid below analysts' estimates, and announced a dividend cut and stock offering aimed at positioning it for an eventual recovery.

The company said it earned $1.18 billion, or 15 cents a share in the quarter, a 68% fall from the $3.70 billion, or 82 cents a share, in the same period a year ago. Analysts polled by FactSet Research had expected earnings of 61 cents a share.

Bank of America BAC, -1.32% Chairman and Chief Executive Ken Lewis cited rising charges for soured credit market investments and higher credit card charge-offs. He said in a prepared statement that, "These are the most difficult times for financial institutions that I have experienced in my 39 years in banking."

During a conference call with analysts, Lewis said: "We've seen, even in the last 45 days, things worsen."

That prompted the company to take "a view that the recession is going to be a little deeper than we thought," Lewis said.

Bank of America said it is cutting its dividend in half, to 32 cents a share, and will sell up to $10 billion in common stock to beef up its balance sheet.

It said the dividend cut should preserve about $1.4 billion a quarter in much-needed capital.

The dividend cut highlighted the seriousness of the capital situation in the banking sector, because Lewis had repeatedly stressed the firm would not cut the dividend and had enough capital to operate with the 64 cents-a-share payout in place.

However, the increased pressure on the credit markets since Lehman Brothers Holdings Inc. filed for bankruptcy last month -- along with the added capital requirement associated with its purchases of Countrywide Financial and Merrill Lynch -- appeared to have forced Lewis' hand.

Shares of Bank of America fell nearly 10% in late trading, to $29.10.

Lewis said the company felt compelled to disclose its lower-than-expected quarterly numbers and capital-raising plans as quickly as possible. He acknowledged the increasingly tight credit markets, and added that in order to maintain a targeted Tier 1 capital ratio of 8%, the company needed to raise money now.

"We don't look real smart today, given what happened, but all in all, we thought it was prudent to get out there sooner rather than later," Lewis said. "You can talk about a miss on estimates, but estimates don't mean what they used to."

The company said earlier that, "The recessionary conditions and outlook for still weaker economic performance ... [will] drive higher credit losses and depress earnings."

Credit card unit takes a hit

Another warning sign also emerged in the company's third-quarter earnings report in the form of credit card write-offs.

The bank said credit card net charge-offs rose to $1.24 billion, representing a net charge-off rate of 6.14%, while credit card managed net credit losses rose to $3 billion, representing a loss rate of 6.4% percent.

"The consumer credit card business experienced a decrease in purchase volumes, slowing repayments and increased delinquencies during the quarter," the company said.

As housing prices fell dramatically, investors who could no longer access credit through home equity loans began increasing their drawdown of revolving credit-card debt. Now, as unemployment rises and the economy worsens, defaults are rising in credit-card land.

In other segments, investment banking income rose 22% from the previous year to $474 million.

Lewis said that the company's capital raise announced Monday should cover its acquisition of Merrill Lynch, a deal announced last month and is expected to provide a boost to its investment banking operations.

Lewis said the acquisition could close by the end of the year, and noted that former Merrill CEO John Thain will serve as head of global corporate and investment banking, "which will incorporate most of Merrill Lynch's businesses."

In addition, Bank of America said its capital markets and advisory services businesses took a $952 million loss in charges related to collateralized debt obligations. Leveraged loan and commercial mortgage related write-downs took a $327 million bite out of results, and the firm lost an additional $190 million from its commitment to buy back auction-rate securities from clients.

Equity investment income results were negatively impacted by write-downs totaling $320 million on the preferred stock of Fannie Mae FNM, and Freddie Mac FRE, +0.07% , the firm said.

Bank of America's global wealth and investment management revenue was affected by $630 million in support for cash funds and $123 million in losses on a commitment to buy back auction-rate securities from clients, it said.

The company added almost $2 billion to its allowance for loan losses, which it said were mainly for consumer loans, including the unsecured consumer lending, credit-card and residential mortgage portfolios.

"Higher levels of bankruptcies are occurring and delinquencies and losses have increased in all consumer portfolios," the firm said.