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Banks Sound Grim Notes Jed Horowitz & John Flower, WSJ 12-07 As the Federal Reserve unveiled an innovative plan for prodding banks to open their lending spigots Wednesday, some of the biggest U.S. commercial banks were busy issuing warnings that their underlying business fundamentals are continuing to deteriorate. That dichotomy shows that whatever success the Fed has in fighting off the year-end squeeze in short-term money markets, banks' problems aren't going away. It also helps explain how a broad stock-market rally exhibited some holes caused by steep drops in banking shares. Bank of America kicked off a parade of grim outlooks, saying that its fourth-quarter results will be "quite disappointing" amid further write-downs on complex debt securities, depressed trading revenue and deepening credit losses. "Credit quality has been good, but we do not see the current level continuing as economic growth slows," Chief Executive Ken Lewis told investors at a Goldman Sachs conference. "A number of banks have forecast increasing credit losses in the coming quarters, and we agree with their statements." Bank of America's shares were down 2.8% in recent trading. Wachovia Corp., which also warned about tough times ahead, saw its shares fall 3.5%. Shares in Citigroup, which drew some bad reviews for its prospects under new Chief Executive Vikram Pandit, fell 4.4%. J.P. Morgan Chase shares were flat. Bank of America said its provisions against loan losses would come to $3.3 billion in the fourth quarter amid deterioration in consumer real estate and small business loans. Mr. Lewis didn't put a number on expected write-downs. Bank of America's capital ratios continue to decline, and the bank may not resume stock buybacks until 2009 while it rebuilds them, Mr. Lewis said. Executives at Wachovia said Wednesday it is bracing for mounting loan defaults and another round of losses tied to risky mortgage investments. Wachovia, estimated that its provision for loan losses will be about $1 billion more than its charge-offs. Its previous forecast was between $500 million and $600 million. Meanwhile, the bank said its market-related losses -- including those stemming from mortgage-backed securities and collateralized debt obligations -- are on pace to exceed the third quarter's. Wachovia's losses on its exposure to collateralized debt obligations and other assets were about $1.4 billion in October and November, compared with around $1.3 billion in the third quarter, said Chief Executive G. Kennedy Thompson at the Goldman Sachs conference Wednesday. The Fed said Wednesday it will lend U.S. commercial banks at least $40 billion at low rates in four separate auctions this month and next, addressing a seasonal lack of liquidity for short-term interbank loans exacerbated this year by a floundering home mortgage market. Wall Street finances much of its inventory with short-term loans and repurchase agreements with banks, which have been reluctant to accept brokers' deteriorating asset-backed securities as collateral. The Fed will start the bidding for its new loans at the level the market expects for the fed-funds rate, which is lower than the discount rate traditionally offered to cash-needy banks, but will accept the same broad types of collateral pledged for discount window loans. That could get liquidity moving in the interbank markets again. "Investment banks finance themselves in part through repurchase agreements with banks, and they'll do this if they have confidence the bank will pay them back," said Robert Litan, the vice president of research and policy for the Ewing Marion Kaufmann Foundation who was a government consultant during the U.S. thrift crisis of the early 1990s. The Fed program, which is being coordinated with four other central banks to keep dollar rates low in the offshore interbank market, reveals the seriousness of the worldwide short-term financing crunch, Mr. Litan said. While bankers warned of significantly lower lending and securities revenue from structured debt products and mortgage-backed securities, the market embraced the central bank announcement. "It's designed to lubricate the entire financial system," Mr. Litan said. Pandit, Bischoff To Lead Citi Robin Sidel & Jed Horowitz & John Flower, WSJ 12-07 Vikram Pandit and Sir Win Bischoff, a little-known duo who spent most of their careers working under the radar, now must work under the glare of Wall Street scrutiny to fix Citigroup. Mr. Pandit's appointment came as little surprise, particularly because he had for weeks been considered a leading contender for the job. The bigger surprise was the appointment of Sir Win, who was named interim CEO last month when Mr. Prince stepped down. Little known even inside Citigroup, he wasn't expected to remain in a high-level post following the naming of a permanent CEO. But Robert Rubin, the longtime Citigroup director who stepped in as temporary chairman when Mr. Prince stepped down, didn't want to stay in the position, according to people familiar with the situation. Mr. Pandit and Sir Win are well-versed in the sophisticated capital-markets and banking businesses that are now under pressure. But neither has much experience in the consumer businesses -- such as retail banking and credit cards -- that make up a big part of Citigroup's operations. These businesses are expected to receive increased scrutiny next year as investors and analysts try to assess whether the rout in the nation's housing markets will spill over into other consumer businesses. Already, credit-card delinquencies are rising from historic lows, and banks are setting aside more funds to cover soured loans. Low key and cerebral, Mr. Pandit spent most of his career at Morgan Stanley, where he was once viewed to be in line for the CEO job. Since joining Citigroup earlier this year when the bank bought his fledgling hedge fund for about $800 million, Mr. Pandit's stature within the bank has soared as the bank's fortunes have diminished. Although he has been at the bank for only about six months, he was promoted shortly after arriving and has played a leading role in the bank's efforts to assess its exposure to its mortgage-related investments as tumultuous credit markets have roiled Wall Street. Although frequently cited as a potential successor to Mr. Prince someday, it wasn't expected that he would step into the role so soon. A native of Mumbai, India, Mr. Pandit arrived in the U.S. as a teenager. He earned an undergraduate degree in electrical engineering and a doctoral degree in finance from Columbia University, where he now serves as a trustee, and was a junior finance professor at Indiana University in the mid-1980s before joining Morgan Stanley. As head of Morgan Stanley's powerful institutional-securities division from 1994 to 2000, Mr. Pandit pushed the company into more electronic trading and helped build the firm's prime brokerage services that cater to hedge funds. He led the institutional-securities business from 2000 until March 2005. Fitch Upgrades PNC AP 12-07 Credit rating agency Fitch Ratings on Wednesday upgraded PNC Financial Services Group Inc.'s long-term issuer default rating due to the bank's strong asset quality, business mix, improving efficiency and strong liquidity. PNC now has a long-term issuer default rating of investment-grade "A+." Fitch previously assigned an "A" rating to PNC. Fitch also said PNC has limited exposure to the current troubles in the credit markets, mainly subprime mortgages given to customers with poor credit history. Many banks have faced declining revenue as fewer subprime mortgages are originated and have written down the value of loans and bonds held in portfolios that are tied to subprime mortgages as the loans increasingly defaulted. Business mix is also well diversified to handle slowdowns, Fitch said, adding about 60 percent of PNC's revenue comes from fee-based activities. Fitch's rating outlook of PNC is stable. Ratings & Dividend Changes On 11-15 KEY declared a dividend of $0.365/share payable December 14, 2007 to shareholders of record on November 27, 2007. On 11-15 STI declared a dividend of $0.73/share payable on December 14, 2007, to shareholders of record at the close of business on November 30, 2007. On 11-14 Punk, Ziegel & Co Upgraded BAC from Market Perform to Buy. On 11-01 CIBC World Markets Downgraded BAC from Sector Outperform to Sector Perform. On 11-27 Punk, Ziegel Upgraded C from Market Perform to Buy. On 11-06 Banc of America Sec Downgraded C from Buy to Neutral. On 11-05 Punk, Ziegel & Co Upgraded C from Sell to Market Perform. On 11-01 CIBC World Markets Downgraded C from Sector Perform to Sector Underperform. On 11-01 Credit Suisse Downgraded C from Outperform to Neutral. On 11-12 Keefe Bruyette Downgraded WB from Outperform to Market Perform. and Morgan Keegan Downgraded WB from Outperform to Market Perform. On 11-09 Friedman Billings Downgraded WB from Market Perform to Underperform. On 11-07 Sandler O'Neill Downgraded WB from Buy to Hold. On 11-16 Keefe Bruyette Downgraded WFC from Outperform to Market Perform. Home Page Factoids Previous Update |