This blog noted in May, thanks to comments from Chris Whalen of Institutional Risk Analytics, that the well publicized losses at large banks were soon to be followed by significant writedowns at mid and smaller sized banks. Whalen saw the wheels starting to come off in the June-July timeframe, meaning they would show up in third quarter earnings reports.
Whalen’s forecast is panning out. From the Financial Times:
Higher loan losses weighed on quarterly results at a clutch of US regional banks on Tuesday amid continued consumer weakness and turbulence in financial markets.
Ohio’s largest banks all suffered losses. National City said it planned to cut about 4,000 jobs, or 14 per cent of its workforce, over the next three years after the bank posted a net loss of $729m, or 85 cents a share. Fifth Third reported a quarterly loss of $56m, or 61 cents per share, and KeyCorp lost $36m, or 10 cents per share.
Profits fell at US Bancorp, which operates in the western two-thirds of the country, as well as at south-east bank Regions Financial and at M&T Bank, based in the mid- Atlantic region. US Bancorp said profits dropped 47 per cent to $576m. Regions’ profits fell 80 per cent to $79.5m and profits at M&T Bank fell 54 per cent to $91.1m.
All the banks more than doubled their reserves for loan losses from a year earlier, and net write-offs for bad loans also soared. “We have experienced the most severe financial crisis any of us has known in our business lifetime,” said Henry Meyer, chief executive of KeyCorp.
The results echoed signs of deteriorating consumer credit and further housing weakness at big rivals such as Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, which have experienced losses on mortgages and credit card loans. Regional banks have suffered from losses on second mortgages and residential construction and development loans.
Several regional banks reporting on Tuesday also suffered losses from holdings of preferred shares issued by Fannie Mae and Freddie Mac, which were virtually wiped out when the two US mortgage agencies were taken into government supervision last month.