Print

Email story

Comment

Letter to the editor

Big banks, puny profits

Bank of America, Wachovia earnings plummet.

By Times Wires
Published January 23, 2008

The biggest banks in Florida are taking it on the chin lately. The latest and most direct blows came Tuesday when the credit crisis and troubled mortgage debt all but wiped out fourth-quarter earnings at Bank of America Corp. and Wachovia Corp.

Bank of America chief executive Ken Lewis said conditions are "the toughest" he's seen since becoming head of the biggest U.S. consumer bank in April 2001.

"The environment is very tough, and we expect it to remain so for some months to come," Lewis said. Still, Bank of America and Wachovia - the two biggest banks operating in Florida - did make money, something that can't be said for Citigroup and some other Wall Street financial firms.

Profits fell 95 percent at Bank of America and 98 percent at Wachovia. The numbers, worse than analysts expected, show that the global credit squeeze is still causing more customers to fall behind on their bills and banks to lose money on securities they own. "The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially," Wachovia CEO Ken Thompson said.

Even though the Federal Reserve cut key interest rates Tuesday to help banks and consumers, other institutions showed signs of weakness. Among other large banks in Florida, Regions Bank reported fourth-quarter profits 80 percent lower than a year ago. And Washington Mutual, also prominent in the Sunshine State, recently reported losing $1.9-billion in the past quarter after earning $1.1-billion in the same period of 2006.

Two others banks with market share clout in Florida - Atlanta's SunTrust and Montgomery's Colonial Bancgroup - will report quarterly earnings today.

Bank of America said net income plunged to $268-million, or 5 cents per share, in the three months ended Dec. 31, from $5.26-billion, or $1.16 per share, a year earlier. Results included $5.44-billion of trading losses, compared with profits of $460-million a year earlier. Revenue fell 31 percent to $12.67-billion.

Bank of America's Lewis said it's time to turn back to a "much more basic strategy" given that housing and credit markets are unlikely to turn around soon, and the expectation of more disappointing economic news.

"Being open for business and being willing to lend money when it's appropriate is exactly what the country needs," Lewis told the Associated Press. He said his bank expects a slowdown, not a recession, this year.

At Wachovia, Bank of America's crosstown rival in Charlotte, N.C., fourth-quarter profit fell to $51-million, or 3 cents per share, from $2.3-billion, or $1.20 per share, a year earlier.

The nation's fourth-largest bank took a $1.7-billion write-down during the quarter due to weakening credit markets. Banks have been forced to reduce the value of bonds and debt backed by mortgages and other consumer loans that have increasingly been defaulted on in recent months.

Because of rising delinquencies and defaults, Wachovia also set aside $1-billion to cover future losses.

Big banks' bad day

95% - The drop in Bank of America's fourth-quarter profit. "The environment is very tough, and we expect it to remain so for some months to come," chief executive Ken Lewis said.

98% - The drop in Wachovia's fourth-quarter profit. "The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially," chief executive Ken Thompson said.

[Last modified January 23, 2008, 00:42:52]