Wachovia's (WB) fourth-quarter net income plummeted 98%, as the company's deteriorating lending portfolio forced it to dramatically increase its loan-loss provision. Anyone surprised?
* Reported net income of $51 million, or three cents a share, versus $2.3 billion, or $1.20 a share, a year earlier. Excluding items, earnings from continuing operations were 8 cents a share, versus $1.19 a share a year earlier.
* Increased its loan-loss provision to $1.5 billion from $206 million.
* Revenue fell 17% to $7.2 billion amid $1.7 billion in mortgage-related losses.
* Capital-markets business, which includes brokerage and asset-management operations, rose 42% to $350 million.
* Net interest margin, the difference between interest earned on loans and paid on deposits, dropped to 2.88% from 3.09%.
Chairman and Chief Executive Ken Thompson said "The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth quarter results substantially. We took active and prudent steps in the second half of the year to deal with the market disruption and credit deterioration, and we believe this allows us to move forward from a position of strength despite the uncertain economic environment."
Thompson seems much more confident that other banks executives. Bank of America (BAC) Ken Thompson said after todays results were released "We are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half."
Wells Fargo President and CEO John Stumpf said "We expect the environment to remain challenging in 2008, particularly in the consumer sector, but we're as committed as ever to satisfying all our customers' financial needs and believe we have the right strategy and team in place to do just that."
Citigroup (C) CEO Vikrim Pandit said, well, it did not matter what he said because until the bank has a stated direction, no one is listening.
Merrill Lynch's John Thain said, "as I look ahead to 2008, the firm is intensely focused on continuing this momentum and delivering growth and increased profitability for our shareholders and employees." Thain really did not say anything, it just sounds like he did. They all are "focused", what do you expect for results, John.
JP Morgan's (JPM) Jamie Dimon commented, "We remain extremely cautious as we enter 2008. If the economy weakens substantially from here - for which, as a company, we need to be prepared, it will negatively affect business volumes and drive credit costs higher."
So, Thompson is either living in lala land or Wachovia has wrote down assets to ludicrous levels and recognizes that the downside is virtually non existent from here. I am in the "write down" camp. If one listened to Merrill's Thain last week he stated their CDO's are written down to "interest only valuations" which is pennies on the dollar.
Now is the time for them to do it, clear the deck and move forward. The Fed gave them a big boost with the 75 point cut today and more is on the way. This ought to boost margins immediately and may stimulate new business in refinances and new mortgages, both good for banks.
Thompson has put himself out there more than once for 2008. His track record at Wachovia has been a very good one and until that changes, I will figure he has a handle on his bank.
Disclosure ("none" means no position): Long Wachovia, Long Citi, None
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