Bankruptcies, flat yield curve hurt bank earnings |

Bankruptcies, flat yield curve hurt bank earnings

NEW YORK – A surge in consumer bankruptcies and a flattening yield curve took a bite out of fourth quarter earnings at some of the nation’s largest banks, and some stepped up provisions for future loan losses. Several banks – including Wells Fargo & Co. and National City Corp. – missed analysts’ profit expectations.Tuesday’s earnings reports, the first in a week heavy with results from financial institutions, underscored how the yield curve has continued to hurt the nation’s banks and thrifts. A flattening yield curve – the result of rising short-term rates and comparatively low long-term rates – squeezes financial institutions’ net interest margin, which is the difference between what banks pay to borrow money and what they can earn when they lend it.At the same time, many banks faced sharp increases in loan charge-offs amid the rush of consumer bankruptcy filings prior to the Oct. 17 change in the nation’s bankruptcy law, which will make it more difficult for consumers to discharge their debts.Jim Bradshaw, an analyst with D.A. Davidson & Co. in Lake Oswego, Ore., said “we think you’ll see the yield curve flat to slightly inverted in the first six months of the year,” putting further pressure on net interest margins. But he also expects only “dribs and drabs” of bankruptcy charge-offs in coming months.Wells Fargo & Co., the nation’s fifth largest bank by assets, said its profit rose 8 percent in the October-December period despite reduced demand for home mortgages and greater bankruptcy charge-offs.The San Francisco-based company earned $1.93 billion, or $1.14 per share, in the quarter compared with $1.78 billion, or $1.04 per share, a year earlier. The results were a penny a share below the estimate of analysts polled by Thomson Financial.Wells Fargo’s shares dropped 57 cents to $62.68 in afternoon trading on the New York Stock Exchange.The surge in bankruptcy filings saddled Wells Fargo with $171 million in consumer loan losses, depressing its quarterly earnings by 7 cents per share. In addition, it took a loss of $127 million in the sale of debt securities, shaving earnings about 5 cents a share.For all of 2005, Wells Fargo earned $7.67 billion, or $4.50 per share, on revenue of $32.9 billion. In 2004, the bank earned $7.01 billion, or $4.09 per share, on revenue of $30.1 billion.In Minneapolis, U.S. Bancorp, the nation’s sixth largest bank, said growth in fee-based businesses helped push fourth-quarter profit up 8.2 percent to $1.14 billion, or 62 cents per share, from $1.06 billion, or 56 cents per share, a year earlier. Results matched Wall Street estimates, according to Thomson Financial. For the year, net income totaled $4.49 billion, up 7.7 percent from $4.17 billion in 2004.In afternoon trading, U.S. Bancorp’s shares fell 46 cents, or 1.5 percent, to $30.13 on the NYSE.National City Corp., which is based in Cleveland, said higher loan losses and bankruptcy filings contributed to a 59 percent decline in fourth-quarter profits.The regional banking company earned $398 million, or 64 cents per share, for the quarter ended Dec. 31, down from $960 million, or $1.46 a share, a year earlier. The results included a charge of $75 million, or 12 cents a share, for restructuring initiatives and other items, while the year-earlier quarter included a gain of $477 million, or 74 cents per share, from the sale of a credit card processing company.Analysts surveyed by Thomas Financial had expected quarterly results of 67 cents per share.For the year, National City earned $2 billion, or $3.09 per share, versus $2.8 billion, or $4.31 per share, in 2004.The bank’s shares advanced 80 cents, or 2.4 percent, to $34.77 in afternoon trading on the NYSE.Another Ohio-based bank, Fifth Third Bancorp, nearly doubled its fourth-quarter profits from a year ago, but its earnings fell short of analysts’ expectations.Net income for the Cincinnati-based bank totaled $332 million, or 60 cents a share, in the quarter compared with $176 million, or 31 cents a share, a year earlier. Analysts surveyed by Thomson Financial had expected earnings of 63 cents a share.Results in the fourth quarter of 2004 included charges of $208 million, or 37 cents per share, from moves intended to improve the company’s interest rate profile.George A. Schaefer Jr., president and chief executive, told a conference call that the first six months this year “will remain a difficult environment” for interest income. Schaefer also predicted that the company could see “modestly higher” loan charge-offs in the first quarter.For the full year, net income rose 2 percent to $1.55 billion, or $2.77 per share, from $1.53 billion, or $2.68 per share.Fifth Third’s shares fell 54 cents, or 1.4 percent, to $38.39 in afternoon trading on the Nasdaq stock market.Vail, Colorado

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