Cautious about the economy, big banks report slow lending
Thursday, January 21, 2010
Two of the nation's largest banks said Wednesday that loan losses generally have stopped increasing but that relatively few customers are seeking new loans, reports that are in broad agreement with other indicators showing that the economy remains weak.
Bank of America and Wells Fargo posted starkly different annual results. Bank of America said it lost $2.2 billion during 2009, its first annual loss in at least 20 years, and Wells Fargo reported an $8 billion annual profit, among its largest ever.
But that was last year. Executives at the companies, which need broad economic growth to profit, spoke in the same cautious key about the year ahead.
"We're not yet seeing the typical level of business activity for a recovery," said Bank of America's new chief executive, Brian Moynihan. But he added, "We believe the economy is stabilizing, markets are opening and customer sentiment is improving."
Said Wells Fargo's chief executive, John Stumpf: "While the economy is starting to show some signs, positive signs and pockets of stability, the unemployment rate is still too high and housing price improvement continues to be spotty."
Persistent loan losses
Annual reports from regional banks Wednesday painted a similar picture of a damaged industry and economy. U.S. Bancorp of Minnesota said profit declined for the fourth straight year, to $2.2 billion, even as loan losses moderated. M&T Bank of Buffalo, which has a large presence in the Baltimore area, reported that profit fell 32 percent, to $379.9 million, and that loan defaults continued to climb.
Several of the banks said that new laws and regulations imposed in response to the crisis threatened to constrain their profitability and their lending.
Bank of America said that it lost $160 million in fourth-quarter revenue through the imposition of restrictions on overdraft fees ahead of new federal rules. It also estimated that a credit card law taking effect next month would cost the bank about $800 million.
Wells Fargo warned that a tax on large banks proposed by President Obama could constrain lending, limiting the company's ability to help revive the economy.
But the banking industry's central challenge remains the inability of many customers to repay loans, as the financial health of many Americans continues to be strained by high unemployment and low housing values.
The nation's largest retail banks, including J.P. Morgan Chase and Citigroup, which already reported annual results, continue to lose billions of dollars, in particular on mortgage and credit card loans. Executives said that the scale of losses is no longer increasing with each passing quarter, but the sums remain vast by historical standards.
Bank of America set aside $10.1 billion in the fourth quarter to cover projected loan losses, an amount that declined for the third straight quarter, but the $48.6 billion the company set aside during 2009 was up 81 percent over the previous year.