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datasets.iitb.crawledDocs.yn_08Oct08_file_12 Maven / Gradle / Ivy

    Welcome, Guest [ , ] - 8988914 AP Bank of America's 3Q results rattle investors Tuesday October 7, 10:18 pm ET Bank of America's earnings slump rattles investors, may give preview of other bank results NEW YORK (AP) -- Bank shares tumbled Tuesday on fears that worse-than-expected third-quarter results by industry bellwether Bank of America Corp. may indicate how others in the sector will fare when they report earnings in coming weeks. Bank of America's disappointing earnings -- which were reported two weeks ahead of schedule -- were due in large part to continued deterioration in asset quality, something most banks are likely to contend with once again when they report results for the July to September period. Since the middle of 2007, nearly all banks have faced mounting losses tied to their lending portfolios, especially mortgage and home equity loan portfolios hit by increasing loan defaults. Late Monday, Charlotte, N.C.-based Bank of America showed it isn't immune to the credit crisis, despite being one of the nation's largest -- and strongest -- banks. It reported that its third-quarter profit fell 68 percent to $1.18 billion, or 15 cents per share. Bank of America set aside $6.45 billion during the quarter to cover credit losses, compared with $2.03 billion during the same quarter last year. In addition, to bolster capital after multiple acquisitions in the past year, Bank of America said it will raise $10 billion in cash through the sale of common stock. Late Tuesday it said it priced the offer at $22 per share. The bank will also cut its quarterly dividend in half. Bank of America shares dropped $8.45, or 26 percent, to close Tuesday at $23.77. Its shares shed another $1.27, or 5.3 percent, to $22.50 in after-hours trading. In a research note, Deutsche Bank analyst Mike Mayo said Bank of America "suffers as the largest U.S. consumer bank at a time of greater consumer weakness." Bank of America joins a slew of other banks, including Citigroup Inc., that have cut their dividend and sold additional stock -- moves that reduce value for shareholders, at least for the short-term. Citigroup has not turned a profit for three straight quarters, and lost a total of $17.4 billion during that period after writing down its assets by about $46 billion. That's the most write-downs of any U.S. bank. New York-based Citigroup, which will report its third-quarter results on Thursday next week, is currently embroiled in a battle for Wachovia Corp. with Wells Fargo & Co. Wachovia, for its part, has been among the banks hardest hit by the downturn in the mortgage market, in part because of its acquisition of Golden West Financial in 2006. Golden West was a major mortgage lender in California, where the mortgage market has been hit especially hard. Wells Fargo has logged three straight quarters of profit declines, but the bank has been weathering the credit crises much better than most of its competitors, in part because of less exposure to subprime mortgages. Wells Fargo's second-quarter profit fell 22 percent as more customers failed to pay back their loans, but the decline was not as bad as analysts had expected. Analysts polled by Thomson Reuters, on average, anticipate another profit decline in the third quarter. JPMorgan Chase & Co., meanwhile, saw its profit fall 53 percent during the second quarter as the bank took a huge hit from defaulting mortgages, credit cards and other loans. In July, Chief Executive Jamie Dimon said he sees prime mortgage losses tripling in the coming quarters. Credit card defaults also looked worrisome. Wachovia shares shed 53 cents, or 9 percent, to $5.25 in trading Tuesday. Citigroup shares fell $2.26, or 13 percent, to $15.15, while Wells Fargo shares declined $3.04, or 9 percent, to $30.60. Shares of JPMorgan fell $4.68, or 11 percent, to $39.32. Wells Fargo will report third-quarter results on Monday, while JPMorgan reports its earnings next week on Wednesday. Wachovia is expected to report results on Oct. 22. While the large national banks are expected to be hit hard in their earnings reports, smaller regional banks are also likely to feel the pain. Though regional banks are not as heavily involved in the investment banking and trading of complex financial instruments as some larger national banks, they do share similar mortgage and consumer lending portfolio characteristics with banks such as Bank of America. Regional banks could face similar jumps in their loan loss provisions and net charge offs as they announce third-quarter results in the coming weeks. Many regional banks have already been setting aside cash to cover future losses as charge offs have climbed steadily since the middle of last year. During the second quarter, KeyCorp's loss provisions jumped to $647 million, more than 12 times the year-ago period. Net charge offs totaled $524 million, compared with $53 million during the same quarter a year earlier. Shares of the Cleveland-based bank fell $1.18, or 10 percent, to $10.61. KeyCorp reports its quarterly results on Oct. 21. Regions Financial is another bank that has been ratcheting up its loss reserves. The Birmingham, Ala.-based bank set aside $309 million to cover bad loans during its most recent quarter. Charge offs accounted for 0.86 percent of its total loan portfolio during the quarter. Shares of Regions Financial, which also reports financial results on Oct. 21, fell $1.49, or 12 percent, to $10.64. Copyright © 2008 Yahoo! Inc. All rights reserved. - Copyright © 2008 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten, or redistributed without the prior written authority of The Associated Press.