Big Banks Lower Outlook, Overshadowing Fed Plan
Three major U.S. banks said they expect more write-downs and loan losses in the fourth quarter, eroding investor enthusiam over a Federal Reserve plan to ease the global credit crunch.
The warnings from the three banks, Bank of America, Wachovia and PNC Financial Services Group, triggered a selloff in financial stocks and reversed a huge rally in the markets.
Nell Redmond / AP
Executives of all three spoke at a Goldman Sachs conference in New York.
Lewis said Bank of America is likely to be profitable in the quarter but expects to set aside $3.3 billion for losses and write-downs.
Loss less than Ãƒâ€šÃ‚Â¼’s earnings.
“While we do not make a practice of forecasting quarterly earnings, I think you certainly can assume results will again be quite disappointing,” Lewis said.
Wachovia’s Thompson told the conference his bank was facing “as tough an environment as I’ve ever seen” and did not know when the credit crunch would be over.
Thompson said Charlotte, North Carolina-based Wachovia had boosted its loan loss provision for the fourth quarter to about $1 billion from a previous $500 million to $600 million.
He said fourth-quarter losses from commercial and consumer mortgages, leveraged finance and structured products, including subprime-backed mortgage securities, had reached about $1.4 billion, similar to the
level seen in the third quarter.
Pittsburgh-based PNC now expects to report earnings of 60 to 75 cents a share for the quarter, or between $1.00 and $1.15 excluding items. Analysts on average had expected PNC to report earnings of $1.33 a
share before items.
Still profitable as well.
The changes reflect a write-down of $1.5 billion in commercial mortgage loans, weak trading results amid market volatility and a higher provision for credit losses stemming from residential real estate development, it said.
Bank of America’s Lewis said he had hoped that the Federal Reserve would cut rates by half a point rather than the quarter point cut it made Tuesday “because the capital markets are still so fragile.”
Can’t blame him for trying!
Lewis said in response to analysts’ questions that the bank hopes to sell off some of its 9 percent stake in China Construction Bank starting in 2008 and is “talking to the Chinese to see what level they would be comfortable with us holding.”
Wachovia’s Thompson said despite the difficult environment, he expected to grow earnings in 2008. He added that the bank might consider raising capital next year in a “relatively inexpensive form,”
such as a preferred stock offering.
Seems to me these losses are ‘well contained’ and not threatening to interrupt business or aggregate demand.