x Abu Dhabi, UAEWednesday 24 January 2018

Mixed results but brighter outlook for largest US banks

As BofA posts first full-year loss in decades, earnings at three other major lenders suggest that worst of the crisis may be over.

Bank of America announced a loss of $5.2 billion in the final three months of last year as consumers continued to struggle.
Bank of America announced a loss of $5.2 billion in the final three months of last year as consumers continued to struggle.

Four major US banks have reported mixed fourth-quarter results as the effects of the global economic crisis continue to ripple through the financial sector. Bank of America (BofA) posted a quarterly loss and its first full-year deficit in more than two decades, caused by the cost of repaying US bailout money and defaults on consumer loans.

But there was brighter news from Wells Fargo, Morgan Stanley and Bank of New York Mellon, which reported profits in a sign that the worst of the economic downturn that devastated the banking and brokerage industries may be over. BofA's loss for the fourth quarter last year, including the cost of exiting the Troubled Asset Relief Programme (TARP), widened to US$5.2 billion (Dh19.09bn) from $2.4bn in the fourth quarter of 2008. Excluding TARP costs, the deficit was $194 million, the third loss in the past five quarters for BofA.

For the full year, BofA reported a net loss of $2.2bn, compared with a 2008 profit of $2.56bn. The annual deficit was the first since Bank-America Corporation, a predecessor company, lost $955m in 1987. "While it's disappointing to report a loss for the fourth quarter, there were a number of important accomplishments worth noting," said Brian Moynihan, the chief executive of BofA, the largest US lender by assets.

"First, we repaid the American taxpayer, with interest, for the TARP investment. Second, we have taken steps to strengthen our balance sheet through successful securities offerings. And third, all of our non-credit businesses recorded positive contributions to our results." BofA weathered the financial crisis with $45bn in taxpayers' money after it absorbed the troubled brokerage firm Merrill Lynch and the home lender Countrywide Financial. But its results were hit by high credit costs, offset in part by gains in investment banking and trading.

"As we look at 2010, we are encouraged by signs the economy is improving, as we have seen in the stabilisation of our credit costs, particularly in the consumer businesses," Mr Moynihan said. "That said, economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth." The bank's results followed the pattern of JPMorgan Chase and Citigroup, which earlier this week reported continuing losses for their lending operations during the fourth quarter.

There was better news from Wells Fargo, Morgan Stanley and Bank of New York Mellon. Wells Fargo, one of the two biggest US home lenders last year, reported a fourth-quarter profit of $2.82bn compared with a loss of $2.55bn a year earlier. "The earnings capability of Wells Fargo's business model has significant power to generate capital internally," said John Stumpf, the chief executive. "As we enter 2010, we believe our franchise has never been better positioned to meet the challenges and opportunities ahead," he said, adding that the bank's profitability helped it to repay $25bn to the government after being supported by the TARP fund.

Morgan Stanley was not quite as upbeat, but the world's biggest brokerage firm showed a profit of $413m for the fourth quarter of last year, compared with a loss of $10.5bn during the same period of 2008. The company nearly folded during the financial crisis and used last year to reposition itself by hiring staff and striking a joint venture with Citigroup to form Morgan Stanley Smith Barney. "I think we have defined a very clear strategy," said Colm Kelleher, the Morgan Stanley chief financial officer. "2010 will be a year of execution for us with a successful integration of Morgan Stanley Smith Barney and resolving ourselves in trading, which is the engine room of the business."

To complete the earnings news in the financial sector, Bank of New York Mellon, the world's biggest custody bank, reported an increase in fourth-quarter profits, fuelled by higher fees for managing investor assets. Profits climbed to $593m from $28m during the final three months of 2008. "The persistent low interest rate environment globally increasingly challenged our net interest revenue and fee revenue," said Robert Kelly, the bank's chief executive.

* with agencies