Wachovia Corp and Washington Mutual Inc led several large US banks in posting weak Q2 results, hurt by soaring losses from mortgages and other debt.Wachovia reported an $8.86 billion loss, while Washington Mutual said it lost $3.33 billion. Two Ohio-based regional banks, Fifth Third Bancorp and KeyCorp, also posted losses. Southeast regional banks Regions Financial Corp and SunTrust Banks Inc each said profit fell.
Wachovia and Regions also slashed their dividends, while Wachovia, Fifth Third and KeyCorp incurred charges from their tax treatment of some lease transactions.
Lenders are suffering as the US housing crisis deepens, making it harder for consumers, businesses and homebuilders to stay current on their loans.
“There is no easy fix,” said Michael Nix, who helps invest $750 million at Greenwood Capital Associates LLC in Greenwood, South Carolina. “We have to see stabilization in housing and, until we see that, it's hard to get comfortable.”
Bank shares nevertheless soared after Wachovia said it would not sell common stock to raise capital.
Wachovia shares closed up 27.4%, Fifth Third up 11.7%, KeyCorp up 4.3%, SunTrust up 16.2%, Regions up 9.6% and Washington Mutual up 6.2%.
The KBW Bank Index rose 8.9% and has risen 39.7% in the last week. Part of those gains came as Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp reported results that were not as bad as investors feared.
Still, “the banking industry is suffering from the tail-end effects of a burst housing bubble,” said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. “What dominates results now is good, old-fashioned credit deterioration. We're going to see more.”
The $8.86 billion loss at Charlotte, North Carolina-based Wachovia, the fourth-largest US bank, equaled $4.20 per share, and compared with a profit of $2.34 billion, or $1.22 per share, a year earlier.
Wachovia slashed its quarterly dividend 87% to 5 cents per share, its second cut this year, and set plans to eliminate more than 10,700 jobs.
Excluding items, the loss was $2.67 billion, or $1.27 per share, compared with the average analyst estimate for a loss of $1.30 per share, according to Reuters Estimates.
Wachovia wrote down $6.06 billion for assets that lost value and added $4.19 billion to reserves for bad loans. It was hurt by its disastrous $24.2 billion purchase in October 2006 of mortgage specialist Golden West Financial Corp.
On a conference call, new Chief Executive Robert Steel said Wachovia would be “realistic and balanced and cautious,” as well as “prudently paranoid,” in working through the credit environment.
Seattle-based Washington Mutual's loss equaled $3.34 per share, excluding the effects of a recent capital raising, and compared with a profit of $830 million, or 92 cents per share, a year earlier. Analysts expected a loss of $1.09 per share.
The largest US savings and loan set aside $5.91 billion for loan losses and expects cumulative residential mortgage loan losses to be “toward the upper end” of the $12 billion to $19 billion range it forecast in April.
“We are planning for continued softness in housing for the next several quarters,” Chief Executive Kerry Killinger said in an interview.
Fifth Third, based in Cincinnati, reported a net loss of $202 million, or 37 cents per share, compared with a profit of $376 million, or 69 cents, a year earlier.
The bank said real estate losses, especially in Florida and Michigan, hurt results. Excluding items, profit was 5 cents per share, compared with the average analyst forecast for nil. Fifth Third lowered its dividend by 66% last month.
KeyCorp, based in Cleveland, posted a loss of $1.13 billion, or $2.70 per share, compared with profit of $334 million, or 84 cents, a year earlier.
Analysts expected a loss of $2.99 per share. Results included a $1.01 billion charge related to leases and higher reserves for commercial real estate construction loans. KeyCorp halved its dividend last month.
Atlanta-based SunTrust said profit fell 21% to $535.3 million, or $1.53 per share, from $673.9 million, or $1.89, a year earlier.
Excluding items, profit was 78 cents per share, topping the average forecast for 64 cents. Results reflected the disposal of a 43.6 million-share stake in Coca-Cola Co to bolster capital. SunTrust has held Coke shares since 1919.
Regions said profit fell 54% to $206.6 million, or 30 cents per share, from $453.3 million, or 63 cents, hurt by home equity and homebuilder loan losses.
Excluding items, profit was 39 cents per share. Analysts had expected 43 cents. The Birmingham, Alabama-based bank cut its quarterly dividend by 74% to 10 cents per share. (Reuters)