Several large U.S. banks reported slowing profit growth on Tuesday amid struggles with interest-rate pressures and rising loan losses, including from mortgages.
Wells Fargo, the fifth-largest U.S. bank, bucked the trend, boosting profit 11% despite its large exposure to the struggling mortgage sector.
Earnings fell 2% at U.S. Bancorp, dropped 3% at SunTrust Banks, and rose 13% at Regions Financial, respectively the sixth- to eighth-largest banks. KeyCorp cut its full-year profit forecast, and its shares fell more than 6%.
Results, on balance, were weaker than those posted Monday by Citigroup and Wachovia, which have well-diversified operations and have emphasized keeping costs down.
"It has been a mixed bag," said Mark Batty, an analyst at PNC Wealth Management, referring to Tuesday's earnings reports.
"There have been net interest margin pressures, and loan losses have been increasing, though not to eye-opening levels," Batty said. "Banks with capital markets and asset management exposure have performed better as have banks that manage costs efficiently."
Wells Fargo, U.S. Bancorp
Net income for San Francisco-based Wells Fargo rose to a record $2.24 billion, or 66 cents a share, from $2.02 billion, or 60 cents, a year earlier. Revenue rose 10% to $9.44 billion. Analysts, on average, forecast profit of 65 cents a share on revenue of $9.31 billion, according to Reuters Estimates. Wells Fargo's largest investor is Warren Buffett's Berkshire Hathaway.
The bank said commercial lending grew 11%, helping offset a $124 million write-off related to a decline in value of mortgages to higher-risk borrowers. Credit losses rose 65%, but analysts and the bank said trends are manageable. Mortgage applications grew 19%, suggesting the bank is winning market share.
"We are a responsible lender," Chief Financial Officer Howard Atkins said in an interview. "We try to make sure we bring people into loans only if they can afford them."
Net income for Minneapolis-based U.S. Bancorp fell to $1.13 billion, or 63 cents a share, from $1.15 billion, or 63 cents, a year earlier. Analysts, on average, expected 65 cents. Net revenue rose 1% to $3.36 billion, below the $3.42 billion consensus. Credit losses increased 54%.
Net interest margin, the difference between what the bank earns on loans and pays on deposits, fell to 3.51% from 3.80% a year earlier. Wells Fargo and U.S. Bancorp operate mainly in the western two-thirds of the United States.
SunTrust Says Alt-A Pressures "Manageable"
At Atlanta-based SunTrust , profit fell to $513.9 million, or $1.44 a share, from $531.5 million, or $1.46. Core earnings, excluding items, fell short of some analysts' forecasts, but the bank raised its outlook for lending margin.
Results suffered from a 90% drop in mortgage profit to $7.5 million from $77.6 million, reflecting lower margins on loans sold and higher write-offs for near-prime loans.
A SunTrust investor relations official, Greg Ketron, on a conference call said Alt-A pressures cut first-quarter profit by 5 cents a share and should reduce second-quarter earnings by a similar amount.
"We feel the situation is completely manageable, given the controls and guidelines that are in place," he said.
Lending income declined 1% from a year earlier to $1.16 billion. A balance sheet restructuring helped push net interest margin up to 3.02% from 2.94% in the fourth quarter.
SunTrust expects net interest margin of 3.10% to 3.20% this year, up from its prior forecast of 2.95% to 3.10%. It said, though, that net interest income should grow at a mid-single-digit rate, down from previous guidance for high single digits.
The bank set aside $56.4 million for loan losses in the first quarter, up 69%. Net charge-offs nearly tripled to $62.9 million amid higher write-offs in commercial, home equity, residential mortgage and indirect loans.
Expenses rose 1% to $1.24 billion, including $13.8 million for a cost-cutting program designed to save $400 million. First-quarter savings from the program totaled $28.6 million.
The bank has $186.4 billion of assets and operates 1,691 branches in several U.S. states, largely in the Southeast.
Through Monday, SunTrust shares had fallen 4% this year, compared with a 2% decline in the Philadelphia KBW Bank Index.
Regions, KeyCorp and Others
Net income for Birmingham, Alabama-based Regions rose to $333 million from $294.7 million, helped by the November purchase of AmSouth Bancorp. Excluding items, profit was 69 cents a share, topping forecasts by 2 cents a share.
Cleveland-based KeyCorp said profit rose 21% to $350 million, or 87 cents a share, from $289 million, or 70 cents. Excluding items, profit missed forecasts by 3 cents a share.
KeyCorp projected full-year profit of $2.80 to $2.95 a share, down from a January forecast of $3.00 to $3.10. "It's primarily related to the interest rate environment we're operating in," Chief Financial Officer Jeffrey Weeden said.
Meanwhile, Buffalo's M&T Bank, another Berkshire favorite, said profit fell 13%, hurt by mortgages. M&T and American Home Mortgage Investment are expected to see more problems with Alt-A loans.
Detroit's Comerica posted a 2% drop, and profit at Milwaukee's Marshall & Ilsley rose 25%.