US Banks Have No Escape From Bad Loans
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Tue Jan 12 09:49:53 2010 EST
By Matthias Rieker and Marshall Eckblad
Of DOW JONES NEWSWIRES
TAKING THE PULSE: Cheap money to fund new loans and higher interest rates
earned from such loans are expected to provide a lift in the traditional
lending business, but losses from soured loans likely will still mire many
banks' fourth-quarter results in losses. Out of 19 big national and regional
banks followed by Sanford C. Bernstein analysts Kevin St. Pierre and John
McDonald, 12 will report fourth-quarter losses, the analysts said in a research
report. Sandler O'Neill said it expects 38% of the 156 banks and thrifts it
covers to post a loss.
On average, profits will decline 12% from a year earlier, Sandler O'Neill
predicted. That is a higher decline than the average analyst expects, according
to Thomson Reuters. But the profit decline is less steep than in previous
quarters.
Though no analyst is seeing anything even remotely resembling a recovery,
banks' long efforts to squirrel away money to cover delinquent loans and the
shrinking of loan books are perhaps starting to pay off. "The regional and
community banks are now in a better fundamental position as the U.S. economy
and housing markets stabilize and recover," Oppenheimer analyst Terry McEvoy
wrote in his research report.
COMPANIES TO WATCH:
Citigroup Inc. (C) - reports Jan. 19
Wall Street Expectations: According to Thomson Reuters, analysts expect
Citigroup to post a fourth-quarter loss of 33 cents a share on $19.4 billion in
revenue. Citi's 2008 fourth-quarter loss was $3.40 a share, with $5.6 billion
in revenue.
Key Issues: The global company will close another tumultuous year on an up
note: It recently repaid the $20 billion remaining in government support. (The
Treasury Department still owns 28% of Citi's common stock.)
As Citi reduces the government shadow, investors are eyeing Citi's basic
businesses, investment banking and global consumer and business banking, as the
bank works to sell off such peripheral businesses as unsecured consumer lending
and disposal of troubled assets. A slew of operations, including Nikko Cordial
Securities, were sold in the fourth quarter.
Investors will be most heartened when Citi turns a profit that is not the
result of large, one-off accounting credits like asset sales or unrepeatable
trading gains.
J.P. Morgan Chase & Co. (JPM) - reports Jan. 15
Wall Street Expectations: Analysts on average expect J.P. Morgan Chase to
post earnings of 62 cents a share on $27 billion in revenue. J.P. Morgan
reported a profit of 6 cents a share in fourth-quarter 2008, on revenue of
$17.2 billion.
Key Issues: J.P. Morgan has impressed Wall Street with its low level of
delinquent business loans and its supercharged profits from securities
underwriting. "Similar to the other capital markets banks, we expect that
advisory/underwriting fees will hold up well," Sanford Bernstein's McDonald
wrote.
But the bank's massive portfolios of credit card, home equity and mortgage
loans remain a bellwether for other lenders, which have been battered for
quarters by consumers falling behind on payments. Fourth-quarter delinquencies
and management guidance could offer insight about when losses might actually
peak.
Bank of America Corp. (BAC) - reports Jan. 20
Wall Street Expectations: Wall Street is expecting the company to report a
loss of 51 cents a share on revenue of $27 billion. In fourth-quarter 2008,
Bank of America reported a loss of 48 cents a share; it made $16 billion in
revenue.
Key Issues: Bank of America's new chief executive, Brian Moynihan, will issue
his first earnings report since taking charge of the bank Jan. 1. But since
Moynihan has been at the helm less than two weeks, investors won't get true
signs of his progress.
That means Wall Street will have its eyes peeled to see how Bank of America's
consumer and commercial loans are performing. Although the bank has a strong
investment bank, thanks to its purchase last year of Merrill Lynch, Bank of
America's overall performance is highly dependent on the economy, and
especially unemployment, which has a direct impact on borrowers' ability to
make their monthly loan payments.
Wells Fargo & Co. (WFC) - reports Jan. 20
Wall Street Expectations: Analysts expect a fourth-quarter loss of 2 cents a
share on revenue of $21.9 billion. Wells Fargo reported a 79-cent per-share
loss a year earlier, on $9.5 billion of revenue.
Key Issues: Collins Stewart analyst Todd Hagerman said the bank could be
among those charging off loans it deems uncollectible more aggressively at
year-end. Favorable mortgage-servicing hedge results and successful capital
raising "provide plenty of incentive" to get rid of bad loans fast, he wrote.
Earnings from lending are expected to decline slightly in the fourth quarter
from the third, because the San Francisco bank is letting pick-a-pay mortgages
to run off. Overall earnings will also suffer from a $2 billion charge related
to last month's Troubled Asset Relief Program repayment. |
