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Credit Crunch Hits 2 More Big Banks

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By IEVA M. AUGSTUMS, The Associated Press

Published: January 23, 2008

CHARLOTTE, N.C. - The credit crisis all but wiped out fourth-quarter earnings at Bank of America Corp. and Wachovia Corp., but the banks did make some money - something that can't be said for Citigroup and other Wall Street financial firms.

Profits fell 95 percent at Bank of America and 98 percent at Wachovia. The numbers, worse than analysts expected, show that the global credit squeeze is causing more customers to fall behind on their bills and banks to lose money on securities they own.

"The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially," Wachovia chief executive Ken Thompson said on a call with analysts.

Last week, the Charlotte-based banks saw their Wall Street brethren disclose billions in losses tied to investments in failed mortgages.
Merrill Lynch & Co., the world's largest brokerage, lost nearly $10 billion in the last three months of 2007, its biggest quarterly loss since it was founded 94 years ago, after writing down $14.6 billion of investments. Citigroup, the No. 1 U.S. bank by assets, reported a $9.83 billion loss after writing down $18.1 billion due to its huge losing bets on mortgage-backed bond products called collateralized debt obligations.

In a conference call with analysts, Bank of America's chief executive Ken Lewis said conditions are "the toughest" he's seen since becoming head of the biggest U.S. consumer bank in April 2001.

"The environment is very tough, and we expect it to remain so for some months to come," Lewis said.

With the housing and credit markets unlikely to turn around soon and more disappointing economic news expected, Lewis said it's time to turn back to a "much more basic strategy."

"Being open for business and being willing to lend money when it's appropriate is exactly what the country needs," Lewis said.
Bank of America shares rose $1.42, nearly 4 percent, to $37.39 Tuesday.

The bank recorded net income of $268 million, or 5 cents per share, in the three months ended Dec. 31, down from $5.26 billion, or $1.16 per share, a year ago. Revenue fell 31 percent to $12.67 billion.

Despite those numbers - and a $4.1 billion bet in purchasing beleaguered mortgage lender Countrywide Financial Corp. - Lewis said he expects Bank of America to generate earnings this year of "well above" $4 per share, absent a market disruption of the scale seen in 2007. Analysts on average expect a profit of $4.39 per share for 2008, according to Thomson Financial.

"Our economic expectations project minimum GDP growth and a slowdown, not a recession, as we expect a pretty rocky start to the year improving thereafter," Lewis said.

Crosstown rival Wachovia said Tuesday that its fourth-quarter profit fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, in the same period a year ago.

Excluding merger-related expenses, Wachovia earned $160 million, or 8 cents a share, in the fourth quarter.

The nation's fourth-largest bank took a $1.7 billion write-down during the quarter due to weakening credit markets. Banks have been forced to reduce the value of bonds and debt backed by mortgages and other consumer loans that have increasingly been defaulted on in recent months.

Because of rising delinquencies and defaults, Wachovia also set aside $1 billion to cover future losses.

Wachovia shares rose $1.11, or 3.6 percent, to $31.91 Tuesday.

Bank of America's results included $5.44 billion of trading losses, compared with profits of $460 million a year earlier. This reflected a $5.28 billion write-down related to collateralized debt obligations, which the bank said reduced trading profit by $4.5 billion and other income by about $750 million.

CDOs are complex investments that combine slices of different kind of risk and are often backed in part by subprime mortgages - loans given to customers with poor credit histories - as well as other loans. In November, Bank of America executives estimated pretax CDO write-downs of at least $3 billion.

"We certainly are not pleased with our performance," Lewis said. "We are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half."

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