| NEW YORK
NEW YORK Bank of America Corp (BAC.N) and
Wachovia Corp WB.N, the second- and fourth-largest U.S.
banks, said on Tuesday quarterly profits were nearly wiped out
by more than $10 billion of credit losses and write-downs.
Fourth-quarter earnings fell 95 percent at Bank of America
and 98 percent at Wachovia, and missed analysts' forecasts.
"The environment is very tough, and we expect it to remain
so for some months to come," Bank of America Chief Executive
Kenneth Lewis said on a conference call. "We stay concerned
about the level of domestic consumption and spending given the
prolonged housing slump, subprime issues and higher fuel and
Bank earnings are falling as a global credit crunch leaves
consumers unable to pay their bills, and banks with mounting
losses on debt they own. Fears of a U.S. economic recession
this week fueled a global sell-off in stocks and an emergency
interest-rate cut by the Federal Reserve.
"It's going to take time for banks to clean up their
problems," said Michael Mullaney, who helps invest $10 billion
at Fiduciary Trust Co in Boston. "We hope we don't see further
spillover from mortgages into other consumer lending, including
credit cards and auto loans, and commercial properties."
Regional banks are also hurting. Profit fell 80 percent at
Regions Financial Corp (RF.N), which operates in the Southeast,
and a respective 42 percent and 83 percent at Ohio-based Fifth
Third Bancorp (FITB.O) and KeyCorp (KEY.N). National City Corp
NCC.N, another Ohio bank, posted a $333 million loss.
"You had massive disruptions in the capital markets, and
that has absolutely persisted," National City Chief Executive
Peter Raskind said in an interview. "The Fed can't make
borrowers borrow and lenders lend."
Shares of Bank of America and Wachovia rose after Lewis and
Wachovia Chief Executive Ken Thompson said they don't expect to
cut their dividends. In afternoon trading, Bank of America was
up $1.14 at $37.11, while Wachovia rose $1.23 to $32.03.
BANK OF AMERICA
Charlotte, North Carolina-based Bank of America said
quarterly net income fell to $268 million, or 5 cents per
share, from $5.26 billion, or $1.16, a year earlier. Revenue
fell 31 percent to $12.67 billion, the bank said.
Excluding merger costs, profit was 9 cents per share,
Reuters Estimates said. Analysts on average expected profit of
19 cents per share on revenue of $13.26 billion. The corporate
and investment banking unit fared worst, losing $2.76 billion.
"Credit quality is clearly broadly deteriorating," wrote
Lori Appelbaum, an analyst at Goldman Sachs & Co.
A $5.28 billion write-down for complex securities known as
collateralized debt obligations was the main reason for the
profit shortfall, and led to $5.44 billion of trading losses.
Bank of America more than doubled the amount it set aside
for credit losses, raising it $1.74 billion to $3.31 billion.
It also incurred $800 million of losses and write-downs for
losses in its money market mutual funds.
The bank made another bet on the U.S. consumer when it
agreed this month to pay $4 billion for Countrywide Financial
Corp CFC.N, the nation's largest mortgage lender. Analysts
expect Countrywide to report a fourth-quarter loss on Jan 29.
Full-year profit tumbled 29 percent to $14.98 billion, or
$3.30 per share. Lewis projected 2008 profit "well above" $4.00
per share, absent a new market shock. Analysts expected $4.33.
Wachovia, also based in Charlotte, said quarterly net
income fell to $51 million, or 3 cents per share, from $2.3
billion, or $1.20, a year earlier.
Excluding merger costs, profit was $160 million, or 8 cents
per share. On that basis, analysts expected 32 cents. Revenue
fell 17 percent to $7.2 billion. Analysts expected $7.22
Results reflected $1.7 billion of losses related to
structured products including collateralized debt obligations.
The bank also set aside $1.5 billion for credit losses, up
sevenfold from a year earlier. Full-year profit fell 19 percent
to $6.31 billion, or $3.26 per share.
"Our fourth-quarter results were poor," Thompson said on a
conference call. "They do not in any way represent our
expectations for the future."
Some losses stemmed from housing weakness in California,
home to the former Golden West Financial Corp, a mortgage
specialist that Wachovia bought in October 2006 for $24.2
billion, an amount critics called too high.
Chief Financial Officer Tom Wurtz nevertheless said that
credit losses on Golden West's roughly $125 billion portfolio
will likely be less than $1 billion in 2008.
"A number of large banks will have larger losses in 2008 on
just their home equity portfolios," he said in an interview.
Several other large U.S. banks reported fourth-quarter
results last week. Profit fell 34 percent at JPMorgan Chase &
Co (JPM.N), 38 percent at Wells Fargo & Co (WFC.N) and 21
percent at US Bancorp (USB.N). Citigroup Inc (C.N) reported a
record $9.83 billion loss.
(Additional reporting by Tim McLaughlin and Dan Wilchins;
Editing by Mark Porter and Dave Zimmerman)