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Bank Of America, Wachovia Predict More Loan Losses

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By IEVA M. AUGSTUMS, The Associated Press

Published: December 13, 2007

CHARLOTTE, N.C. - More troubling news erupted from the financial services sector Wednesday as Wachovia, PNC and Bank of America warned of bigger-than-expected writedowns 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, and the chief executive of crosstown rival Bank of America Corp. pointed to higher writedowns and said he expects current credit market turbulence to extend into 2008.

A third major bank, PNC Financial Services Group Inc., said the money it will set aside to cover bad loans for the last three months of the year will be more than twice as large as in the third quarter.

The disclosures come as a number of the nation's banks have forecast increasing credit losses in the wake of the summer's subprime mortgage crisis.

In a filing with the Securities and Exchange Commission last month, Charlotte-based Wachovia had said it expects to record a loan loss provision in the fourth quarter between $500 million and $600 million.

Losses Mounting

In a discussion with financial analysts Wednesday in New York, Wachovia's chief executive Ken Thompson said fourth quarter losses from commercial and consumer mortgages, leveraged finance and structured products, including subprime-backed mortgage securities, had reached about $1.4 billion, similar to the level in the third quarter.

Thompson said the updated fourth-quarter writedown estimate "will position us better as we enter 2008," and he added that he is "comfortable" that his bank will "grow earnings" in next year, but gave no specific forecast.

All three were making presentations at an investment conference in New York hosted by Goldman Sachs.

In a client note to investors, Morgan Keegan & Co. analyst Robert S. Patten said: "There is no good news that we expect from the banks as they work their way through these credit and liquidity issues."

'Disappointing' Results

In a separate presentation, Bank of America's chief executive Ken Lewis said "the economy is definitely slowing."

"We expect weak fourth and first quarters, but at this point we are not forecasting a recession," Lewis said. "I think you certainly can assume results will again be quite disappointing."

Bank of America said it expects to take a provision expense of $3.3 billion in the fourth quarter and warned writedowns on collateralized debt obligations could grow, adding to fears 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.

Shares of Wachovia fell $3.38 to $40.53, while Bank of America dropped $1.22 to $43.43. PNC fell $3.55 to $68.24.

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, bank executives estimated pre-tax CDO writedowns of $3 billion, a $300 million writedown of a troubled investment, $600 million in support for cash funds and $230 million for the Visa settlement with Amex.

"Based on conditions today, we expect those writedowns will be larger than have already been reported - although obviously we won't know our final numbers until we close the fourth quarter," Lewis said Wednesday.

"We will discuss those numbers on the January earnings call."

Bank of America is expected to report fourth-quarter earnings Jan. 22. Analysts polled by Thomson Financial, on average, forecast a profit of 70 cents a share.

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