Bank of America (NYSE:BAC) on Monday reported a surge in first-quarter profits, the latest upbeat results from a major US bank, but its hefty bad-debt provision sent shockwaves through Wall Street.

Bank of America (NYSE:BAC) , the largest US bank by assets, posted a net profit of 4.2 billion dollars with a big contribution from newly acquired Merrill Lynch.

Bank of America (NYSE:BAC) said the government-engineered acquisition of the ailing Wall Street investment bank had contributed more than three billion dollars to its bottom line.

After positive earnings results from Citigroup and Goldman Sachs last week, Bank of America (NYSE:BAC) 's robust earnings for some suggested that the reeling financial sector may be on the mend.

But Bank of America (NYSE:BAC) , which has received 45 billion dollars in government aid to weather the financial crisis, said it had added a hefty 6.4 billion dollars to its loan loss reserve, signaling it is bracing for further turbulence as the world's largest economy struggles with recession for a second consecutive year.

The bad-debt provision roiled Wall Street, with investors worrying that the recent spate of profits reported by major banks that received public aid could prove a temporary respite in the face of mounting bad debt.

Despite reporting first-quarter earnings per share of 44 cents, 11 times higher than analysts' expectations and nearly triple that of a year ago, shares in Bank of America (NYSE:BAC) plunged 15.47 percent to 8.96 dollars in midday New York trade.

Paul Nolte at Hinsdale Investments said that even though banks have returned to profitability, the source of these profits may not be sustainable.

"With much of the gains coming from the benevolent government aid -- that is not likely to be repeated in subsequent quarters -- the above-average (and positive) earnings may be nothing more than a one-quarter phenomenon," Nolte said.

A report by The New York Times that President Barack Obama's administration is considering converting the government's existing loans in the nation's 19 biggest banks into common stock, citing administration officials, also riled financials.

"If the government makes the move, it would become by far the largest shareholder in a number of the financial firms. It would also dilute current shareholders and could cause bank shares to collapse because of this dilution," said Douglas McIntyre at 24/7 Wall Street.

Bank of America (NYSE:BAC) , bank based in Charlotte, North Carolina, included results from Merrill Lynch, which it acquired on January 1, and mortgage lender Countrywide Financial, which was purchased on July 1, 2008.

Merrill Lynch added 3.7 billion dollars to net income, excluding certain merger costs, "on strong capital markets revenue," Bank of America (NYSE:BAC) said.

Countrywide also added to net income because of increased mortgage lending and refinancing volume.

Bank of America (NYSE:BAC) noted the year-ago period does not include Merrill Lynch and Countrywide results.

For the 2008 first-quarter, the bank posted net income of 1.2 billion dollars, or earnings per share of 23 cents.

In the fourth quarter of 2008, the bank had a net loss of 1.7 billion dollars.

"The fact that we were able to post strong, positive net income for the quarter is extremely welcome news in this environment," said Kenneth Lewis, chairman and chief executive.

The bank said it had paid 402 million dollars in preferred dividends in the January-March period to the US government.

Revenue, after interest expense, more than doubled to a record 36.1 billion dollars from a year ago.

Bank of America (NYSE:BAC) said it was creating 5,000 new jobs. At the end of March, the global banking giant employed about 284,800 people.

Its Tier One capital ratio, a key measure of a bank's lending capacity, rose to 10.09 percent in the first three months of the year, from 7.51 percent a year ago.

Bank of America (NYSE:BAC) received 25 billion dollars last year under the government's 700-billion-dollar Troubled Asset Relief Program (TARP).

In January, the government announced it would invest another 20 billion dollars in the bank to help it absorb Merrill Lynch and guarantee against the possibility of losses on 118 billion dollars in shaky assets.