Bank of America said its provisions against loan losses would come to $3.3 billion in the fourth quarter amid deterioration in consumer real estate and small business loans. Bank of America’s capital ratios continue to decline, and the bank may not resume stock buybacks until 2009.
Wachovia, the fifth-largest U.S. bank by market value, said that the Charlotte, N.C., bank is bracing for mounting loan defaults and another round of losses tied to risky mortgage investments. Wachovia, estimated that its provision for loan losses will be about $1 billion more than its charge-offs. Its previous forecast was between $500 million and $600 million. Meanwhile, the bank said its market-related losses — including those stemming from mortgage-backed securities and collateralized debt obligations — are on pace to exceed the third quarter’s. Wachovia’s losses on its exposure to collateralized debt obligations and other assets were about $1.4 billion in October and November, compared with around $1.3 billion in the third quarter.
Through Sept. 30, banks in the U.S. and Europe racked up some $38 billion in losses on their exposure to mortgage-related investments. More than $16 billion in additional write-downs are expected in the fourth quarter, which doesn’t include the wave of fresh write-downs that banks have warned of over the past month.
Merrill Lynch on Wednesday recommended investors stop buying stock in Bank of America and J.P. Morgan and sell stock in Wachovia. J.P. Morgan, as one of the largest consumer lenders in the U.S., will be hard-pressed to avoid the pain of a recessionary economy, Merrill said of the third-largest U.S. bank.
Recommendations: Go long on SKF or short XLF