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BAC Reports $0.05 vs. $1.16 in Q4-06 PRNewswire 1-22 Bank of America reported Q4-07 net income was $268 million [$0.05/share] compared with $5.26 billion [$1.16/share] in Q4-06. Trading account losses were $5.44 billion compared with profits of $460 million in Q4-06, driven by writedowns of collateralized debt obligations and weaker trading results. The provision expense increased $1.74 billion, largely due to a $1.33 billion addition to the reserve for credit losses. ROA in Q4-07 was 0.06% compared to 1.39% in Q4-06. ROA for 2007 was 0.94% compared to 1.44% in 2006. ROE in Q4-07 was 0.60% compared to 15.76% in Q4-06. ROE for 2007 was 11.08% compared to 16.27% in 2006. Book value per share at the end of Q4-07 was $32.09 compared to $29.70 at the end of Q4-06 FTE Net interest income rose 10% to $9.81 billion from $8.96 billion in Q4-06. The increase was mainly due to the addition of LaSalle, consumer and commercial loan growth, a higher contribution from market-based net interest income and a one- time benefit related to the restructuring of BOA's leasing business. The increase was partially offset by the impact of rate fluctuations. The net interest yield narrowed 14 basis points to 2.61%. Noninterest income declined 65% to $3.51 billion from $9.89 billion. The decrease was driven by significant trading account losses, lower equity investment income, and losses related to the support of certain cash funds and subsequent writedowns related to securities originally purchased from the funds at fair value. The decline was offset in part by the $1.50 billion gain on the sale of Marsico. Net charge-offs were $1.99 billion [0.91% of total average loans and leases compared with $1.57 billion [0.80%] in Q3-07 and $1.42 billion [0.82%] in Q4-06. Nonperforming assets were $5.95 billion [0.68% of total loans, leases and foreclosed properties] at December 31, 2007. LaSalle contributed $1.21 billion to the year-end levels. Nonperforming assets were $3.37 billion [0.43%] at September 30, 2007 and $1.86 billion [0.26%] at December 31, 2006. KEY Reports $0.06 vs. $0.76 in Q4-06 PRNewswire 1-22 KeyCorp announced Q4-07 income from continuing operations of $22 million [$0.06/share] compared to $311 million [$0.76/share] for Q4-06 and $224 million [$0.57/share] for Q3-07. Key's provision for loan losses from continuing operations was $363 million for Q4-07, up from $53 million for Q4-06. Key recorded net losses of $6 million from loan sales and write- downs, $1 million from dealer trading and derivatives, and $23 million from certain real estate-related investments for a total of $30 million in net losses. This compares to net gains of $58 million from these activities for Q4-06 and net losses of $77 million for Q3-07. ROA was .09% compared to .93% in Q3-07 and 1.33% in Q4-06. ROE was 1.11% compared to 11.50% in Q3-07 and 15.63% in Q4-06. Book value at the end of Q4-07 was $19.92 compared to $20.12 at the end of Q3-06- and $19.30 at the end of Q4-06. FTE net interest income was $750 million compared to $744 million for Q4-06. Average earning assets grew by $5.4 billion, or 7%, while the net interest margin declined to 3.48% from 3.66% for Q4-06. The reduction was due largely to both loan and deposit spreads which have been under pressure due to competitive pricing. Total earning assets were $86.210 billion earning $1.487 billion at an average yield of 6.86%. Total interest-bearing liabilities were $71.550 billion costing $0.737 billion at an average yield of 4.11%. Noninterest income was $488 million compared to $558 million for Q4-06. Results for Q4-07 include $6 million in net losses from loan sales and write-downs, including $31 million in net losses pertaining to commercial real estate loans held for sale, offset in part by $28 million in net gains from the sales of commercial lease financing receivables. Net loan charge-offs totaled $119 million [0.67% of average loans from continuing operations] compared to $54 million [0.33%] for Q4-06 and $59 million [0.35%] for Q3-07. At December 31, 2007, Key's nonperforming loans totaled $687 million and represented 0.97% of period-end portfolio loans, compared to 0.72% at September 30, 2007, and 0.33% at December 31, 2006. At December 31, 2007, nonperforming assets totaled $764 million and represented 1.08% of portfolio loans, other real estate owned and other nonperforming assets, compared to 0.83% at September 30, 2007, and 0.41% at December 31, 2006. WB Reports $0.03 vs. $1.20 in Q4-06 PRNewswire 1-22 Wachovia reported net income of $51 million [$0.03/share] compared with $2.30 billion [$1.20/share] in Q4-06. Q4-07 contained [1] $0.05/share in after-tax net merger-related expenses and [2] provision for credit losses of $1.5 billion. ROA in Q4-07 was 0.03% compared to 0.88% in Q3-07 and 1.31% in Q4-06. ROE in Q4-07 was 0.28% compared to 9.19% in Q3-07 and 13.09% in Q4-06. Book value per share at the end of Q4-07 was $37.66 compared to $36.90 at the end of Q3-07 and $36.61 at the end of Q4-06. FTE Net interest income was $4.674 billion compared to $4.584 billion in Q3-07 and $4.612 billion in Q4-06. Net interest margin in Q4-07 was 2.88% compared to 2.92% in Q3-07. Fee and other income was $2.526 billion compared to $2.797 billion in Q3-07 and $4.011 billion in Q4-06. Net charge-offs as % of average loans were 0.41% [$461 million] compared to 0.19% in Q3-07 and 0.14% in Q4-06. Nonperforming assets as % of loans were 1.08% [$5.2 billion] in Q4-07 compared to 0.63% in Q3-07 and 0.32% in Q4-06. WFC Reports $0.41 vs. $64 in Q4-06 Business Wire & AP 1-16 Wells Fargo earned $1.36 billion [$0.41/share - which included a $1.4 billion or $0.27/share credit reserve build] during Q4-07 compared to $2.18 billion [$0.64/share] for Q4-06. The results matched the earnings estimates of analysts, who had already factored in a series of charges and loan loss reserves. ROE was 17.1%. Book value per share at the end of Q4-07 was $14.45 compared to $13.57 at the end of Q4-06. Net interest income after provision for credit losses was $2.876 billion compared to $4.324 billion in Q4-06. Net interest margin in Q4-07 was 4.62% compared to 4.93% in Q4-06. Total earning assets of $477.526 billion generated an average return of 7.75%. Total funding sources of $477.526 billion generated an average cost of 3.13%. Net charge-offs as % of avg. total loans were 1.28% compared to 0.92% in Q4-06. Nonperforming loans as % of total loans were 0.70% compared to 0.52% in Q4-06. Total noninterest income was $4.717 billion compared to $4.363 billion in Q4-06. Service charges on deposit accounts were $788 million, Total trust and investment fees were $802 million, Card fees were $588 million, Mortgage banking income was $831 million, and Insurance income was $370 million. With more home equity borrowers in California and the Midwest defaulting on their loans, Wells Fargo set aside $1.4 billion during Q4 to cover its anticipated losses in the portfolio during 2008 and 2009. The bank also is jettisoning about $12 billion of its shakiest home equity loans, leaving about $72 billion in the remaining portfolio. Wells Fargo wrote off $595 million in home equity loans in 2007. More than one-third of Wells Fargo's remaining home equity loans are in California, where there are rapidly rising foreclosure rates and eroding real estate values. WFC wrote off $223 million [5.01%] of its credit card loans in Q4-07, up from $176 million [4.3%] in Q3-07. The amount of Well Fargo's consumer loans at least 90 days behind in repayments totaled $1.44 billion at the end of 2007, a 32% increase from $1.1 billion at the end of 2006. Moody's Investors Service affirmed its credit ratings for Wells Fargo on Wednesday after concluding the bank is well positioned to weather the economic turbulence ahead. Moody's rates Wells Fargo as "Aaa" for depositors -- a positive sign that could help the lure new customers rattled by the huge losses being wracked up by other big banks. JPM Reports $0.86 vs. $1.09 in Q4-06 Business Wire & CNN 1-16 JP Morgan Chase reported Q4-07 income from continuing operations of $2.971 billion [$0.86/share], down 21% compared with $3.9 billion [$1.09/share] in Q4-06. JPM was projected to earn $0.93 by analysts surveyed by Thomson Financial. Q4-06 included a $622 million gain on the sale of selected corporate trust businesses - which result in total net income for Q4-06 of $4.526 billion. Q4-07 included markdowns of $1.3 billion (net of hedges) on subprime positions, including subprime CDOs. ROA was 0.77% compared to 0.91% in Q3-07 and 1.14% in Q4-06. ROE was 10% compared to 11% in Q3-07 and 14% in Q4-06. Book Value at the end of Q4-07 was $36.59 compared to $35.72 at the end of Q3-07 and $33.45 at the end of Q4-06. Net interest income was $8.8 billion, up $1.8 billion, or 25%, due to higher trading-related net interest income and growth in liability and deposit balances in the wholesale and consumer businesses. These increases were offset partially by a shift to narrower–spread deposit products. Wholesale net charge-offs were $25 million, compared with net charge-offs of $28 million, resulting in a net charge-off rate of 0.05% and 0.07%, respectively. The total consumer-managed provision for credit losses was $2.9 billion, compared with $1.5 billion in the prior year, reflecting increases in the allowance for credit losses largely related to home equity, credit card and subprime mortgage loans, and higher net charge-offs. Consumer-managed net charge-offs were $2.0 billion, compared with $1.5 billion, resulting in a managed net charge-off rate of 2.22% and 1.76%, respectively. The firm had total nonperforming assets of $4.2 billion at December 31, 2007, up $1.9 billion, or 81%, from the prior-year level of $2.3 billion. Citi Reports Loss & Cuts Dividend MarketWatch 1-15 Citi swung to a loss of $9.83 billion, or $1.99 a share, from net income of $5.13 billion, or $1.03 a share, in the year-earlier period. Continued woes in the subprime-mortgage market caused the bank to book pre-tax write-downs and credit costs of about $18.1 billion. Revenue dropped 70% to $7.22 billion from $23.83 billion. The firm took $5.1 billion in credit costs in its U.S. consumer business, driven primarily by higher charges to loan-loss reserves reflecting accelerating delinquencies and losses during the quarter in its U.S. mortgage portfolio and higher current and expected losses in its U.S. cards and personal loan portfolio. Citi cut the dividend by 41%. Citi last cut its dividend in 1991, eliminating it completely at the height of that decade's real-estate crisis. It resumed payouts in 1994. BOA to Buy Countrywide Reuters & AP 1-11 Bank of America said on Friday it would buy mortgage lender Countrywide Financial for $4 billion in a move that could avert one of the biggest collapses in the U.S. housing crisis. The purchase provides a lifeline for Countrywide, which became a poster child for what critics say were lending excesses that fueled the housing and credit meltdown. The largest U.S. mortgage lender has been convulsed by mounting losses and defaults, a loss of access to credit markets, and a slew of lawsuits and regulatory probes into its lending practices. The purchase calls for the exchange of 0.1822 of a Bank of America share for each Countrywide share. It values Countrywide at $7.16 per share, a 7.6 percent discount to its Thursday closing price, and at just 0.31 times tangible book value. Bank of America's Lewis acknowledged on a conference call the near-term challenges in mortgages, saying he expects loan volumes to fall through 2008. Still, he called the purchase of Countrywide a "one-time opportunity ... when the value is very attractive." In 1994, Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act. The bill allowed banks to buy banks headquartered in other states, which was previously illegal under the Bank Holding Company Act. One of the provisions of this bill was that no bank can buy another bank if the combined company will hold more than 10% of the country's deposits. When Bank of America bought LaSalle Bank from ABN Amro Holding NV last year, the Federal Reserve estimated BOA held 9.88% of the nation's $6.828 trillion in deposits. That deal did not quite test the 10% limit, but the Countrywide deal might. Still, Countrywide is a thrift bank, which is not governed by the deposit ceiling. Banks' Narrowing Margins Robin Sidel, WSJ 1-08 Even as the credit crunch and weak housing market cause problems for the nation's banks, there is another goblin lurking in the wings: The basic business of collecting deposits and lending money is becoming less profitable. Many banks that are gearing up to report fourth-quarter results in the next couple of weeks are likely to report narrowing in net interest margins -- a key measure of industry profitability -- already at the lowest level since 1991. Much of the pinch is being attributed to a scramble for deposits. Even though the Federal Reserve has been cutting interest rates, many banks are still offering attractive rates for deposits. A quarterly survey released last week by Citigroup Inc. found that "the competition to raise new deposits" via certificates of deposit and money-market funds "remains intense." The survey noted that while some banks have followed the Fed's lead and trimmed rates, others have been offering promotions that are well above the federal-funds target rate of 4.25%. That is particularly the case for financial institutions that have run into difficulties and need those deposits to fund loans and build up their capital levels. Countrywide Financial Corp. and E*Trade Financial Corp. -- both of which have been hit hard by the credit crunch -- are offering some of the industry's highest rates on products like CDs: one-year rates are about 5%. That pressures other banks to keep their rates up as well. Although that is good news for consumers who get higher returns on their savings, it is bad news for bank profits. The situation is being exacerbated by recent strong loan growth. While banks are now collecting less interest on loans because of the Fed's rate reductions, they are still making the same interest payments to depositors. Banks typically try to fund loans through deposits, which can often be a lower-cost option than borrowing, and their profit is the difference between what they charge borrowers and what they pay out to depositors. The profit squeeze is likely to surprise investors who have been focused on the credit squeeze that has forced some banks to take big write-downs. "Everybody is focused on credit quality this quarter, but the secondary issue is margins," says Joseph Fenech, a managing director at Sandler O'Neill & Partners LP, a boutique research and investment-banking firm that specializes in the financial-services industry. Adding to that surprise is smaller banks that rely on lending for a bigger portion of their profits are likely to get hit hardest. These banks have largely avoided the subprime-mortgage mess that has tripped up many larger banks. The scramble for deposits is just another bad sign for the banking business, which is stumbling after several strong years. In recent months, banks have set aside billions of dollars to cover soured loans. Banks also have been hurt by the weak housing market and exposure to a slew of sophisticated financial products that were tied to the subprime mortgage mess. Both trends are expected to accelerate this year, keeping pressure on bank earnings and stock prices. Net interest margins are the bread-and-butter of banking, reflecting the money made on the difference between rates paid to depositors and rates charged to borrowers. The industry's average third-quarter margin stood at 3.78%, the lowest level since 1991, according to SNL Financial. Margins have been slipping regularly since early 2006, when they stood at about 4%. The situation is particularly difficult for small and midsize banks, which may derive a substantial amount of their profits from interest income. Small banks may rely on such income for as much as 80% of their profits, while larger entities can rely on fee-generating businesses like investment banking to make up some of the lost income. "Margin compression is going to be a major factor in banking," says John McCune, research director for SNL's financial-institutions group. In a report issued yesterday, Bank of America estimates that the industry will likely see Q4 net interest margins drop by 0.05 to 0.15 percentage point. "Anecdotal evidence holds that competition has kept deposit costs high and has yet to abate," said the report issued by banking analysts John McDonald and Kenneth Usdin. They also noted that as some rates fall, "customers move toward higher-yielding products." Indeed, several banks already have warned that Q4 results will suffer from a margin squeeze. Cascade Bancorp, a community bank in Bend, Ore., that operates branches in Oregon and Idaho, last week said that its Q4 margin will shrink to 4.94% from 5.24% three months earlier. The bank attributed the decline to a combination of weakening credit quality, which deprives banks of interest income from assets they have to keep funding; lower interest rates, which make lending less lucrative; and "seasonal changes in deposit composition." Deposit trends are often regional. The recent Citigroup survey found that competition has been heating up in the Western part of the country, an area that usually is among the nation's least competitive. Banking analyst Keith Horowitz cited Wachovia as leading the charge, offering money-market teaser rates at 4.85%, up 1.5 percentage points since the third quarter. "This should lead to deposit growth, but will also increase deposit costs," Mr. Horowitz wrote in the report. Elsewhere, the survey found that deposit rates in the Midwest remained high but at steady rates in the third quarter. "Over the past five years, banks didn't mind paying a little more for deposits. Now the real problem is that they've got to continue to grow deposits and keep a lid on or reduce the cost of those deposits," says Jeff Brown, a principal at Deloitte Consulting. Ratings & Dividend Changes On 1-08 Robert W. Baird & Co began coverage of a dozen U.S. banks and said shares of these firms were unlikely to outperform, owing to a difficult consumer and mortgage credit environment. Baird, which initiated Comerica, M&T Bank and PNC Financial with an "outperform" rating, said shares of these firms will continue to outperform peers, even as growth trends will slow in 2008 due to industry credit trends. Bank of America, Wachovia, Wells Fargo, SunTrust, BB&T Corp, Marshall and Ilsley, KeyCorp, U.S. Bancorp and Fifth Third Bancorp were all initiated with a "neutral" rating by Baird. "Although Bank of America is among the least expensive stocks in our universe, we do not see the valuation discount changing given our expectation of negative earnings-per-share revisions and incrementally weaker credit metrics at the company," the brokerage said. 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. Home Page Factoids Previous Update |