Wells Fargo, other U.S. banks hurt by credit losses

By Jonathan Stempel

NEW YORK (Reuters) - Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) and other U.S. regional banks on Tuesday reported disappointing third-quarter results, hurt by loan losses that may rise further as the U.S. housing slump deepens.

Profit missed estimates at Wells Fargo, Regions Financial Corp (RF.N: Quote, Profile, Research, Stock Buzz) and KeyCorp (KEY.N: Quote, Profile, Research, Stock Buzz). U.S. Bancorp's (USB.N: Quote, Profile, Research, Stock Buzz) results topped forecasts, although profit fell. Each bank reported higher loan losses, following Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) on Monday.

"As trends over the last four or five years start to play in reverse, it becomes a difficult environment for banks to manage in," said Thomas Russo, who helps invest $3 billion at Gardner, Russo & Gardner in Lancaster, Pennsylvania.

Banks are struggling as tight capital markets force them to write down some holdings as investors take less risk. Meanwhile, falling housing prices are making it harder for homeowners to refinance, adding to delinquencies, and leaving some commercial real estate borrowers strapped for cash.

U.S. Treasury Secretary Henry Paulson on Tuesday called the housing decline "the most significant current risk" to the economy. A day earlier, Federal Reserve Chairman Ben Bernanke said the housing slump will likely be a "significant drag" on economic growth through early 2008.

"Clearly, weakness in the housing market and higher delinquencies in mortgages remains a headwind for the banking industry," said Mark Batty, an analyst at PNC Wealth Management in Philadelphia, which invests $77 billion.

By the close of Tuesday trading, Wells Fargo had dropped 3.9 percent to $34.55, U.S. Bancorp was down 0.5 percent to $32.35, Regions was 2.1 percent lower to $28.53, and KeyCorp had slid 5.9 percent to $30.44.

WELLS FARGO, U.S. BANCORP