Bank of America, Wachovia Hit by Mortgage Writedowns

January 22, 2008 No Comments »

Both Bank of America and Wachovia Bancorp barely chalked fourth-quarter profits as a result of hefty mortgage-related writedowns and increased loan-loss provisions.

Bank of America Profit Dives

Bank of America saw its fourth-quarter profit slip 95 percent to just $268 million, or 5 cents per share, compared to $5.26 billion, or $1.16 per share, during the same period last year.

Its earnings were severely impacted by a $5.28 billion writedown related to the flagging value of its CDOs, and $3.3 billion set aside for bad loans.

The bank’s fourth-quarter revenue fell a staggering 31 percent to $12.67 billion, from $18.49 billion last year.

The company saw home equity loan losses triple since the end of the third quarter, while charge-offs rose to 0.91% of the total portfolio from 0.82% and non-performing assets more than doubled to 0.68% of total assets from 0.26%.

On a positive note, first mortgage originations rose 22 percent to more than $104 billion from $86 billion a year ago, helped in part by the success of its No Fee Mortgage PLUS, which accounted for 16 percent of the company’s first mortgage production in the fourth quarter.

Bank of America plans to shore up more than $2 billion in capital to better position itself for the pending acquisition of Countrywide Financial, but said it doesn’t plan to cut its dividend.

For the full year, the banking giant reported earnings of $14.98 billion, or $3.30 per share, compared with $21.13 billion, or $4.59 cents per share, a year earlier.

Wachovia Barely Turns a Profit

Wachovia faired even worse, with profit dwindling 98 percent to just $51 million, or 3 cents per share, compared to $2.3 billion, or $1.20, a year ago.

Its fourth-quarter results included a $1.7 billion writedown tied to mortgage-related investments and $1.5 billion set aside for loan losses.

Fourth-quarter revenue at the bank and mortgage lender dipped to $7.2 billion from $8.62 billion in the same period a year ago.

Net charge-offs rose to $461 million, or an annualized 0.41 percent of average net loans, while non-performing assets climbed to $5.2 billion, or 1.08 percent of its loans, foreclosed properties and loans held for sale.

Despite capital concerns, chief executive Ken Thompson told investors during a conference call that the bank would not cut its dividend.

For all of 2007, Wachovia earned $6.31 billion, or $3.31 per share, compared to $7.79 billion, or $4.72 per share, reported in 2006.

Analysts surveyed by Thomson Financial, on average, forecast earnings of 18 cents per share for Bank of America and 33 cents per share for Wachovia.

Shares of Bank of America climbed $1.87, or 5.20%, to $37.84, while Wachovia gained 62 cents, or 2.01%, to $31.42.

National City Reports a Fourth Quarter Loss

In related news, National City reported a fourth-quarter loss of $333 million, or 53 cents a share, compared with year-earlier net income of $842 million, or $1.36 a share.

The results include $181 million, or 26 cents a share, in mortgage-related charges and a loan-loss provision of $691 million tied to the liquidation of portfolios containing non-conforming mortgages and home equity loans.

Net charge-offs for the quarter were $275 million, or 0.96% of average portfolio loans, compared with $128 million a year earlier, while nonperforming assets more than doubled to $1.5 billion, or 1.31% of loans, mostly linked to a larger number of delinquent residential mortgage loans.

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