Updated from 12:53 p.m. ESTLarge regional banks across the U.S. plunged on Thursday after reporting earnings hit by the ever-expanding mortgage and credit market deterioration. The KBW Bank Index, which tracks the largest banking companies, dropped 3.9% to 79.53, while the KBW Regional Banking Index fell 3.1% to 66.80. "Most of our clients are sitting on the sidelines waiting for these
PNC Financial ServicesPNC Financial Services ( PNC), one of the more conservative consumer lenders of the bunch, posted a 53% drop in profit, related to previously announced charges taken as a result of credit problems on loans made to homebuilders. In the final three months of the year, the Pittsburgh-based bank reported profit of $178 million, or 52 cents a share, compared to $376 million, or $1.27 a share, in the fourth quarter of 2006. PNC's revenue of $1.63 billion rose just 6% from a year earlier, but fell 7% from the third quarter to $1.63 billion. "PNC had a good year in 2007, given the operating environment," said Chairman and CEO Jim Rohr. "However our fourth quarter performance did not meet our expectations due to challenges that included unprecedented market volatility and credit deterioration in our residential real estate development portfolio." PNC, on an adjusted basis, earned $365 million, or $1.07 a share, down 7% from a year earlier. Analysts expected the bank would make $1.07 a share. Results exclude a charge related to the settlement by Visa and member banks with American Express ( AXP), which claimed they were conspiring to keep it out of the bank-issued credit card business, as well as certain issues related to its BlackRock ( BLK) investment. PNC warned last month of $26 million of writedowns on about $1.5 billion worth of commercial mortgage loans held for sale, lower trading results, an increase to the provision due to credit losses related to residential real estate development -- primarily loans in Maryland and Northern Virginia -- as well as certain expenses related to its stake in BlackRock. The bank said that its total exposure to residential real estate is approximately $2.1 billion. PNC had to set aside an additional $188 million in the fourth quarter, more than four times its provision for the year-earlier period, partially from the residential real estate exposure, but also from "growth in total credit exposure," the company said. In the past year, PNC has completed several bank acquisitions including Mercantile BankShares of Baltimore and Yardville National Bank of New Jersey. "Charged-off" loans totaled $83 million, or 0.49% of its average loan balance, the company said. Shares were losing 5.2% to $57.80 Thursday afternoon.
Huntington BancsharesHuntington Bancshares ( HBAN) posted a net loss of $239 million, or 65 cents a share, mostly related to its exposure to one subprime lender commercial customer, but also warned of increasing weakness in the Michigan and Ohio commercial real estate markets. That compares to a profit of $87.7 million, or 37 cents a share, in the year-earlier period.
The Columbus, Ohio-based company had previously warned of charges against the loans made by Franklin Credit Management ( FCMC), over concerns that the loans had deteriorated much faster than expected. The commercial relationship was grandfathered in as a result of Huntington's purchase of Sky Financial last year. Huntington's charges totaled $1 per share. That included a $512 million provision for credit losses -- $406 million of which was for loan losses expected in the Franklin loans. It also had market-related losses and a $25 million pretax charge for the Visa settlement, among other things. "We are disappointed with these results," said Chairman and CEO Thomas Hoaglin. "Clearly the biggest setback was the significant negative impact associated with the previously announced restructuring of the Franklin relationship acquired in the Sky Financial merger. However, we firmly believe that the specific reserves we have established and the positive cash flow coverage resulting from the restructuring address fully the current and anticipated financial performance issues associated with this relationship. As such, we do not anticipate any further negative impact from this relationship. "Also negatively impacting performance was the need to build non-Franklin-related loan loss reserves in view of the continued weakness in the residential real estate development market," he added. Huntington attributed the remaining provision to continued weakness in Michigan and Ohio. Shares were falling 7.2% to $11.54 on late Thursday.
ComericaElsewhere, Comerica's ( CMA) shares tanked more than 10% after reporting profits fell 60% to $119 million or 79 cents a share, missing analysts' estimates by 26 cents. The fourth quarter of 2006 included a one-time gain of $47 million from a lawsuit settlement and an after-tax gain of $108 million on the sale of Comerica's stake in Munder Capital Management, which was sold to a private equity firm and Munder's management in 2006. The Dallas-based regional bank primarily attributed the lower earnings to its loan loss provision of $108 million and a lower net interest margin -- the profit that a bank makes by taking in deposits and lending them out again. Comerica's net interest margin fell 32 basis points from a year earlier and by 23 basis points from the third quarter to 3.43. Last year "was a challenging year for the banking industry, including Comerica," said Chairman and CEO Ralph Babb Jr. "While we continued to execute our strategy, reflected by strong loan growth, particularly in our high growth markets, challenges in the residential real estate development portfolio affected our performance. Our fourth quarter earnings were largely impacted by an increase in the provision for loan losses and a decline in the net interest margin, driven in part by a decision to increase the securities portfolio and a competitive funding environment." The stock dipped $4.38 to $37.89.
First HorizonMemphis-based First Horizon ( FHN), meanwhile, swung to a huge continuing-operations loss of $252.8 million, or $2 a share, compared with a year-ago profit of 17 cents a share. That, furthermore, widens from a third-quarter shortfall of just 11 cents a share as the pretax loss from its mortgage segment vaulted nearly sixfold, sequentially, to $262.8 million. First Horizon also set aside $156.6 million to cover bad loans, up from a third-quarter loan-loss provision of $43.3 million. It said the provision would cover "inherent losses" in residential construction portfolios related to discontinued product structures and "higher-risk national markets," including Florida, California, Virginia, Georgia and Nevada. The bank's share of the Visa settlement, totaling $55.7 million, factored in losses as well.
The bank also said it would cut its dividend by more than half to 20 cents, from 45 cents. Standard & Poor's cut its rating to BBB+ from A-, with a negative rating. Shares were plummeting 15.4% to $15.99.