Several of the nation’s leading banks warned Friday that the sub-prime lending crisis would contribute to another round of quarterly losses, a sign that fallout from the housing and mortgage-lending slump is spreading deeper into the nation’s credit markets.
Wachovia Corp. began the day by writing down the value of its loan-backed securities by about $1.1 billion, and was followed by Bank of America Corp. and JPMorgan Chase & Co., which both said their fourth-quarter results would suffer -- although neither bank quantified any potential markdowns in filings with the Securities and Exchange Commission.
Financial services provider E-Trade Financial Corp. also said Friday that it expected the value of its asset-backed securities to continue to drop, while credit card leader Capital One Financial Corp. reported an increase in October loan charge-offs and delinquencies.
The warnings sent stocks tumbling on Wall Street, with the Dow Jones industrial average falling more than 220 points. Shares of Wachovia rose 35 cents to $40.65, after sinking earlier in the day to a 52-week low of $38.05. Bank of America shares climbed 48 cents, to $43.98, and JPMorgan shares dropped 30 cents to $42.31.
The mortgage-related write-downs across the banking industry eclipsed $40 billion in the third quarter, and Friday’s announcements are a sign that the fourth quarter could be even worse. In its SEC filing, Wachovia said the market in November was “extraordinarily volatile.”
Already, the nation’s financial institutions have said the value of their portfolios has fallen by about $20 billion in the fourth quarter -- a total that includes an estimate by Citigroup Inc. that it will write down as much as $11 billion and Morgan Stanley’s anticipated write-down of as much as $6 billion.
Along with its $1.1-billion markdown, Wachovia said it planned to boost its allowance for loan losses in the fourth quarter because of expected credit deterioration in the housing market in certain regions. The provision is pegged at $500 million to $600 million in excess of charge-offs in the quarter.
The write-down again raised questions about the wisdom of Wachovia’s 2006 acquisition of adjustable-rate mortgage lender Golden West Financial Corp. of Oakland. Wall Street was never really convinced that the Charlotte-based bank’s $24-billion purchase last year of one of the country’s largest mortgage lenders was a smart bet.