Lenders warn of losses amid credit crunch
Two of the largest U.S. banking companies said Monday that tough credit market conditions could cause higher losses related to their lending operations.
Washington Mutual Inc., the largest savings and loan and sixth-largest mortgage lender, said it may set aside $500 million more for bad loans this year in addition to the $1.5 billion to $1.7 billion it had forecast, citing what Chief Executive Kerry Killinger called a “near perfect storm” in housing.
Wachovia Corp., the fourth-largest bank, said its investment banking unit might be stuck holding loans intended to fund leveraged buyouts, but which investors would not buy.
“Volatility in the fixed-income market is being felt at Wachovia,” Chief Executive Ken Thompson said. “We don’t know when markets will normalize.”
The comments at Lehman Bros. Holdings Inc.'s financial services conference followed Friday’s announcement by Calabasas-based Countrywide Financial Corp., the largest mortgage lender, that it planned to cut up to 12,000 jobs, or 20% of its workforce, by December.
Banks and thrifts are struggling as investors worry about how far credit problems will spread beyond riskier sub-prime home loans into other markets.
Mortgage lenders face rising defaults and mounting losses on loans they cannot sell.
Investment banks are struggling to find buyers for some of the roughly $300 billion of loans and debt they had committed to fund buyouts before this summer’s credit crunch. This could lead banks to mark down the value of some loans.
Thompson said Wachovia’s exposure might be $9 billion to $16 billion, reflecting its 3% to 4% market share in that area. He said the bank had reduced its exposure to financing leveraged buyouts.
Signs of the problems’ depth may emerge next week, when Wall Street banks Bear Stearns Cos., Goldman Sachs Group Inc., Lehman Bros. and Morgan Stanley are scheduled to report quarterly results.
Washington Mutual shares closed 28 cents lower at $34.74, while Wachovia fell 78 cents to $47.28. Countrywide dropped $1 to $17.21.
Seattle-based Washington Mutual has fallen to sixth in U.S. mortgage lending from third in 2005, after it stopped making some riskier loans and eliminated nearly 11,000 jobs in 2006.