Commercial Banks Continue to Struggle
The effects of the housing and mortgage markets continue to plagued US commercial banks. At least the banks mentioned below are not looking for equity injections at this point. From Market Watch:
Some of the nation's largest banks on Wednesday warned of higher losses in the fourth quarter as the turmoil in the credit and mortgage markets continues to weigh on the financials sector.
Bank of America Chief Executive Ken Lewis said the firm would have to write down a larger amount of its investment in some debt securities than previously planned. "Based on conditions today, we expect those write-downs will be larger than have already been reported -- although obviously we won't know our final numbers until we close the fourth quarter," . . . . The company had previously expected to report a write-down of $3 billion.
Lewis also said that while fourth-quarter results will be "disappointing," the company will still report a profit. "While we do not make a practice of forecasting quarterly earnings, I think you certainly can assume results will again be quite disappointing. At this point, the final write-downs of CDOs are unknowable, but we expect to be profitable in the fourth quarter," Lewis concluded.
Lewis said the problems continue to grow, based on a slowing economy, but he stopped short of predicting a recession. "We're getting closer to 50-50 though, "Lewis said, referring to the likelihood of a recession.
He said the firm now expects provision expense at $3.3 billion in the fourth quarter, reflecting increased reserves of about $1.3 billion. Bank of America is also looking to rebuild it capital ratio, like all its rivals.
Lewis said he's planning to get the bank's Tier 1 capital ratio to 8%; that means there won't be any share buybacks until at least 2009.
Also Wednesday, Wachovia Corp., in a Securities and Exchange Commission filing, said it now estimates its loan-loss provision for the fourth quarter will be about $1 billion in excess of charge-offs. Its previous forecast was between $500 million and $600 million due to slowing loan growth and ongoing deterioration in its loan portfolio.
In a separate regulatory filing Wednesday, PNC Financial Services Group Inc., said it expects to report fourth-quarter earnings in the range of 60 cents to 75 cents a share, and adjusted earnings between $1 and $1.15 a share.
The revised expectation is due to write-downs on its $1.5 billion of commercial mortgage loans held for sale and lower trading revenue as a result of "unprecedented market price volatility," PNC said in the filing. It also expects to take a charge of $141 million before taxes on its stake in money manager BlackRock Inc. The company said its adjusted provision for credit losses is expected to be about $45 million higher in the fourth quarter compared with the third quarter.
"Despite the anticipated increase in provision for credit losses, current asset quality remains relatively strong given the existing credit environment," PNC said.