Losses pile up for big banks
new york -- Merrill Lynch & Co., Washington Mutual Inc. and Sovereign Bancorp Inc. on Friday became the latest banks to take big write-downs on mortgages and other credit-related losses, but their shares rose on hopes the worst was over.
After similar warnings earlier this week from Citigroup Inc., UBS and Deutsche Bank, the latest disclosures dramatized the sweeping effect of the meltdown in the sub-prime mortgage market and left investors wondering how many profit warnings were still to come.
JPMorgan Chase & Co. and Bank of America Corp., the biggest arrangers of U.S. leveraged loans, may write down the value of their holdings by a combined $3 billion in the third quarter after surging mortgage defaults paralyzed credit markets, analysts at Sanford C. Bernstein & Co. said.
JPMorgan may have to write down holdings by about $2 billion, and Bank of America’s markdown may be about $1 billion, Bernstein analysts Howard Mason and Michael Howard wrote in a note to investors Friday.
Merrill shares closed up $1.89 at $76.67 while Washington Mutual rose 79 cents to $36.07. Sovereign shares gave up gains after its profit warning but were still up 33 cents at $17.73.
Merrill said it would write down $5.5 billion for bad bets on sub-prime mortgages and leveraged loans, taking the worst hit yet among major Wall Street brokerages from turmoil in the credit markets.
As a result, it will post a loss of as much as 50 cents a share for the quarter. Analysts on average had expected a steep decline in profit to $1.43 a share.
Washington Mutual, the No. 1 U.S. savings and loan, said it expected a 75% plunge in profit after it made provisions for nearly $1 billion for loan losses and it took $410 million in losses and write-downs for various loans and securities in its portfolio.
Sovereign, the nation’s second-largest thrift, roughly tripled its provision for credit losses to $165 million and said it would take $35 million in charges related to financing extended to troubled mortgage lenders, as well as write-downs of loans in its portfolio.
