Banks delivered a cascade of miserable news Tuesday, but investors apparently were expecting worse and responded by bidding up the shares. Meanwhile, Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said Tuesday that more banks are in danger of failing and that the FDIC expects to raise premiums to restore its reserve fund after paying out billions of dollars to depositors at IndyMac Bank.
"I think there is still a structural issue with U.S. banks," said Russell Walker of the Kellogg School of Management at Northwestern University. Banks are slashing their dividends, selling assets and issuing new securities to shore up their damaged capital. Many also have jacked up CD rates to attract deposits. Here's a look at some of Tuesday's reports:
The really grim news of the day came from Wachovia Corp., which reported a record loss of $8.9-billion, pared its dividend to a nickel a share and said it is eliminating 10,750 jobs, which will involve firing 6,350 workers. The huge loss, the equivalent of $4.20 a share, compares with a gain of $2.34-billion for the same period a year ago. The quarterly dividend was 64 cents before being cut to 37.5 cents in April. Charlotte-based Wachovia's biggest problems relate to its 2006 acquisition of Golden West Financial Corp., a California mortgage lender. Part of the legacy of that deal is $122-billion in "pick-a-payment" loans, in which the default rate is now approaching 6 percent and could reach 12 percent. Wall Street's verdict: Stock up $3.61 to close at $16.79.
The Atlanta bank fortified its capital with three transactions involving Coca-Cola Co. stock. SunTrust, which helped underwrite Coke's initial offering in 1919, said it sold 10-million shares in June for a $314-million profit. In addition, this month it gave 3.6-million shares to its charitable foundation and set up a transaction that will result in the sale of the remaining 30-million shares in seven years. Second-quarter net income was $540-million, or $1.53 per diluted share, down from $681-million. Wall Street's verdict: Stock up $5.52 to close at $39.66.
Firth Third Bancorp raised $1.1-billion by selling 8.5 percent convertible preferred securities. However, it lost $202-million last quarter, or 37 cents per share, compared with a profit of $376-million a year ago. Nonperforming assets rose to 2.56 percent. Wall Street's verdict: Stock up $1.56 to close at $14.95.
Shareholders took a hit as the Birmingham, Ala., bank strengthened its capital position by slashing its quarterly dividend from 38 cents to 10 cents a share. The bank reported net income for the quarter of $206.4-million, or 30 cents a share, down from $454-million. Wall Street's verdict: Stock up $1 to close at $11.40.
The Seattle-based bank said Tuesday it lost a staggering $3.33-billion, or $6.58 per share, during the second quarter as it increased its loss reserves to more than $8-billion to cover souring loans in its mortgage portfolio. The bank also slashed its quarterly dividend to 1 cent from 15 cents, which will result in savings of about $490-million a year. Wall Street's verdict: Stock up 34 cents to close at $5.82.