Riding the nation's economic rebound, Bank of America Corp. and Wachovia Corp. report strong fourth quarters.
By Times Staff and Wire Reports
Published January 16, 2004
The two largest banks operating in Florida, Bank of America Corp. and Wachovia Corp., reported rising profits in the fourth quarter Thursday as the country's economic rebound translated into fewer bad loans.
Bank of America, which controls 20 percent of Florida's deposits, reported a 4 percent rise in earnings to $2.73-billion, or $1.83 per share, compared to $2.61-billion, or $1.69 per share, in the year-ago quarter. That beat Wall Street's average estimate by five cents a share.
Wachovia, No. 2 in Florida with 15 percent of the market, reported that net income rose 23 percent to $1.1-billion, or 83 cents per share, compared to $891-million, or 66 cents per share, in the fourth quarter of 2002. Excluding after-tax expenses for mergers and other items, Wachovia's earnings of 88 cents per share met the average expectations of analysts surveyed by Thomson First Call.
Bank of America is the third-largest bank in the country and Wachovia is fifth. Both are based in Charlotte, N.C.
In one sign of resurgence, Wachovia slashed its provision for bad loans by $222-million to $86-million in the quarter ended Dec. 31. Apart from lingering problems with the Parmalat scandal in Italy, Bank of America was likewise largely upbeat, reporting across-the-board gains. Consumer and commercial banking profit rose 11 percent to $1.91-billion, and corporate and investment banking profit rose to $576-million.
The improving economy, however, is putting the banks under a different kind of pressure.
With interest rates expected to rise, both mortgage lending and net profit margins are expected to suffer. That is increasing speculation the megabanks will have to return to acquisitions to expand - a notion that is being reinforced by two big deals in the works.
Bank of America is buying FleetBoston for $47-billion and on Wednesday, J.P. Morgan Chase & Co. agreed to buy Bank One Corp. for $55.1-billion.
"Now that most credit is getting better, it's a question of when will loan growth come back," said James McGlynn, who helps manage $6-billion, including Wachovia and Bank of America shares, at Summit Investment Partners in Cincinnati.
In a conference call with analysts Thursday, Wachovia chairman and chief executive Ken Thompson indicated he doesn't feel pressured to respond with a like-sized merger.
"We are willing to make acquisitions, but we are only willing to make them if they are attractive to our shareholders," Thompson said in a conference call with analysts. "We don't need to do a deal."
Thompson said Wachovia remained interested in buying banks, asset managers or insurance brokers either within or outside its 11-state East Coast range. He said previously that Wachovia isn't interested in investment-banking firms.
In his most recent acquisitions, Thompson paid a low premium to merge First Union Corp. with the old Wachovia in 2001, and formed a joint brokerage venture with Prudential Financial Inc. in a cashless transaction last year.
Wachovia's net income for the year rose to $4.3-billion, or $3.18 a share, from $3.6-billion, or $2.60 a share, in 2002.
Bank of America reported net income of $10.81-billion for the year, a 17 percent gain over last year's $9.25-billion. Full-year earnings rose to $7.13 per share from $5.91 per share in 2002.
One of the bank's biggest sore spots was Parmalat.
As of the end of 2003, the bank had $274-million in exposure to the bankrupt Italian food company through a combination of direct loans, letters of credit and derivative exposure. The bank charged off about $114-million, or half the direct loans, which were not collateralized by cash.
During a conference call with the bank, analyst Nancy Bush of NAB Research asked if there are concerns about risk management with the Parmalat meltdown coming shortly after problems surfaced in Bank of America's mutual fund business.
Bank of America vice chairman and chief financial officer Jim Hance portrayed Parmalat as an isolated case of fraud with no wrongdoing found among bank employees so far in the investigation. "We think we have excellent risk management processes," he said.
He said the bank relied on audited financial statments and rating agency reports regarding Parmalat and "they were duped like everyone else."
Hance said the outlook for the remainder of 2004 was better for the U.S. economy.
Bank of America's economists are projecting a 3.5 percent growth in gross domestic product with unemployment remaining near the current level of 5.7 percent.
"Inflation is under control and there is no pressure for the Fed to raise (interest) rates until the second half of the year," Hance said.
"This is the first year out of the last four in which we feel positive about the economy in the short term."
- Times staff writer Jeff Harrington contributed to this report, which also included information from Bloomberg News and Times wires.
