Regional banks' results hurt by credit crisis

By Jonathan Stempel

NEW YORK (Reuters) - The credit crisis weighed on results at six large U.S. regional banks located throughout the country, as they reported lower profits or continued losses on Tuesday.

Profits fell at U.S. Bancorp, which operates in the western two-thirds of the country, as well as at Southeast bank Regions Financial Corp and the mid-Atlantic's M&T Bank Corp.

Ohio's largest banks all suffered losses, with National City Corp posting its fifth straight quarterly deficit and Fifth Third Bancorp and KeyCorp their second straight. National City also set plans to cut 4,000 jobs, or 14 percent of its workforce, over three years.

All the banks more than doubled their reserves for loan losses compared with a year earlier, and net charge-offs also soared. Results echoed deteriorating credit at big rivals such as Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co.

"This is what happens in a recession, especially one driven by financials and the consumer," said Edward Hemmelgarn, president of Shaker Investments in Cleveland. "Everything always looks gloomiest as banks try to stay ahead of the curve." Nevertheless, he said capital at many banks "is actually in pretty good shape."

Tight credit conditions were one reason U.S. Treasury Secretary Henry Paulson plans to infuse $250 billion of capital into the nation's banks, as part of his $700 billion Troubled Asset Relief Program.

Regions plans to seek as much as $3.5 billion of capital from TARP, while KeyCorp will seek $1.1 billion to $3.3 billion. Other banks said they may also participate. New capital may also allow some lenders to make acquisitions.

"Changes with regard to capital availability and tax changes potentially makes a merger transaction financially more attractive," U.S. Bancorp Chief Financial Officer Andrew Cecere said in an interview. He said the bank plans to decide within a couple of weeks whether to raise a potential $2.2 billion to $6.6 billion from the program.

"The big picture is continued consumer weakness, which will probably deteriorate further, leading to more credit losses and capital-raising," said Bill Fitzpatrick, an analyst at Optique Capital Management Inc in Milwaukee, Wisconsin.

He said KeyCorp, National City and Regions in particular "could be prime beneficiaries of TARP from a capital side."

PROFITS FALL

Profit at U.S. Bancorp fell 47 percent to $576 million, or 32 cents per share.

The Minneapolis-based lender has fared better than most rivals in the credit crisis, and Chief Executive Richard Davis said it has had exceptional deposit inflows in October as nervous depositors flee weaker rivals. Yet the bank set aside more than three times as much as a year earlier for bad loans.

"We are not immune to the challenges of the current environment," Davis said.

Regions, a Birmingham, Alabama, lender, said profit fell 80 percent to $79.5 million, or 11 cents per share.