3 big banks warn write-downs may rise, earnings fall
More troubling news erupted from the financial services sector Wednesday as Wachovia, PNC and Bank of America warned of bigger-than-expected write-downs and hinted that fourth-quarter results could be disappointing.
Wachovia Corp. doubled its estimate of loan-loss provisions to about $1 billion for the fourth quarter, while the chief executive of crosstown rival Bank of America Corp. pointed to higher write-downs and said he expected current credit-market turbulence to extend into 2008.
A third major bank, PNC Financial Services Group Inc., said it would set aside twice as much money to cover bad loans this quarter as it did in the previous one. The disclosures add to the credit-related losses suffered by many U.S. banks amid the sub-prime mortgage crisis.
In a filing with the Securities and Exchange Commission last month, Charlotte-based Wachovia said it expected to record a loan-loss provision in the fourth quarter of between $500 million and $600 million.
In a discussion with financial analysts Wednesday in New York, Wachovia Chief Executive Ken Thompson said fourth-quarter losses from mortgages, leveraged finance and structured products, including securities backed by sub-prime mortgages, had reached about $1.4 billion, similar to the level seen in the third quarter.
Thompson said the updated fourth-quarter write-down estimate “will position us better as we enter 2008,” and he added that he was “comfortable” that his bank would “grow earnings” next year but gave no specific forecast.
Wachovia shares fell $1.42, or 3.4%, to close at $40.53 Wednesday, while Bank of America shares lost $1.22, or 2.7%, to $43.43 and PNC shares dropped $2.51, or 3.6%, to $68.25.
All three were making presentations at an investment conference in New York hosted by Goldman Sachs.
Bank of America CEO Ken Lewis said the bank expected to take a provision expense of $3.3 billion in the fourth quarter and warned that write-downs on collateralized debt obligations, or CDOs, could grow, adding to fears that the nation’s housing and mortgage-lending slump might exact a greater toll than in the wretched third quarter -- when industrywide write-downs topped $46 billion.
On Monday, Bank of America decided to liquidate a privately placed, enhanced institutional cash fund, closing it off to new investors, because of withering losses on complex asset-backed securities.
Last month, the bank’s executives disclosed estimated pre-tax CDO write-downs of $3 billion, a $300-million write-down of a troubled investment, $600 million in support for cash funds and $230 million for the Visa credit card settlement with American Express.
Bank of America is expected to report fourth-quarter earnings Jan. 22. Also on Wednesday, PNC said in a regulatory filing that it expected to report fourth-quarter earnings in the range of 60 cents to 75 cents a share, and adjusted earnings would be between $1 and $1.15 a share.
The company said its adjusted provision for credit losses would be about $110 million in the fourth quarter, up $45 million from the previous quarter.
