KEY POINTS:
Bank of America and Wachovia, banks ranked second and fourth in size in the US, say their quarterly profits were nearly wiped out by more than US$10 billion ($13.2 billion) of credit losses and write-downs.
Fourth-quarter earnings fell 95 per cent at Bank of America and 98 per cent at Wachovia, and missed analysts' forecasts.
"The environment is very tough, and we expect it to remain so for some months to come," said Bank of America chief executive Kenneth Lewis.
"We stay concerned about the level of domestic consumption and spending given the prolonged housing slump, sub-prime issues and higher fuel and food prices."
Bank earnings are falling as a global credit crunch leaves consumers unable to pay their bills, and banks with mounting losses on debt they own. Fears of a US economic recession this week fuelled a global sell-off in stocks and an emergency interest-rate cut by the Federal Reserve.
"It's going to take time for banks to clean up their problems," said Michael Mullaney, who helps invest US$10 billion at Fiduciary Trust in Boston.
"We hope we don't see further spillover from mortgages into other consumer lending, including credit cards and auto loans, and commercial properties."
Regional banks are also hurting. Profit fell 80 per cent at Regions Financial, which operates in the Southeast, and a respective 42 per cent and 83 per cent at Ohio-based Fifth Third Bancorp and KeyCorp.
National City, another Ohio bank, posted a US$333 million loss.
"You had massive disruptions in the capital markets, and that has absolutely persisted," said National City chief executive Peter Raskind.
"The Fed can't make borrowers borrow and lenders lend."
Shares of Bank of America and Wachovia rose after Lewis and Wachovia chief executive Ken Thompson said they did not expect to cut their dividends.
In afternoon trading, Bank of America was up US$1.14 at US$37.11, while Wachovia rose US$1.23 to US$32.03.
Charlotte, North Carolina-based Bank of America said quarterly net income fell to US$268 million, or 5 cents per share, from US$5.26 billion, or US$1.16, a year earlier. Revenue fell 31 per cent to US$12.67 billion, the bank said.
Excluding merger costs, profit was 9 cents per share, Reuters Estimates said. Analysts on average expected profit of 19 cents per share on revenue of US$13.26 billion.
The corporate and investment banking unit fared worst, losing US$2.76 billion.
"Credit quality is clearly broadly deteriorating," wrote Marc Kandel, an analyst at Goldman Sachs.
Wachovia, also based in Charlotte, said quarterly net income fell to US$51 million, or 3 cents per share, from US$2.3 billion, or US$1.20, a year earlier.
Excluding merger costs, profit was US$160 million, or 8 cents per share. On that basis, analysts expected 32 cents. Revenue fell 17 per cent to US$7.2 billion. Analysts expected US$7.22 billion.
- REUTERS
