Bank Warnings Cast Cloud on '08

The holidays may be over, but 'tis still the season for bank profit warnings.

Wall Street firms haven't been the only companies derailed by the credit crunch in the back half of 2007. The last weeks of the year were marked by early warnings from a handful of regional banks that profit and earnings for the fourth quarter are unlikely to bring belated holiday cheer.

The fourth quarter is typically a "noisy" quarter for bank earnings, analysts say, as companies take charges for one-time items to spiff up their balance sheets for the coming year. This particular fourth quarter, however, is shaping up to be one of the worst in years at the regional banks, which are reeling from the ongoing credit crunch and deterioration in the housing industry.

"The preannouncements are coming because the numbers are coming in significantly below consensus estimates," says Peter Winter, an analyst at BMO Capital Markets. "We're not talking a few pennies here -- you're talking in certain cases an 80% hit to estimates for the fourth quarter."

At least 16 banks of all sizes, including Wells Fargo(WFC Quote - Cramer on WFC - Stock Picks), Washington Mutual(WM Quote - Cramer on WM - Stock Picks), PNC(PNC Quote - Cramer on PNC - Stock Picks), Fifth Third(FITB Quote - Cramer on FITB - Stock Picks), SunTrust(STI Quote - Cramer on STI - Stock Picks) and KeyCorp(KEY Quote - Cramer on KEY - Stock Picks), have already said that earnings would come in short of expectations.

Analysts expect the banking sector to post a 43% year-over-year drop in fourth-quarter net income, according to Thomson Financial. Regional banks are expected to post a 50% drop in net income, Thomson says. The growth rates compare estimated net income, which excludes one-time items, in the fourth quarter to actual net income (excluding one-time items) in the fourth quarter of 2006.

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