Wells Fargo and other U.S. regional banks Tuesday reported disappointing third-quarter results, hurt by mounting losses from mortgages and other loans as the housing market slumps.
Earnings fell short of analysts' forecasts at Wells Fargo, Regions Financial and KeyCorp. U.S. Bancorp's results topped forecasts, though profit fell.
All four banks said loan losses rose.
"As trends over the last four or five years start to play in reverse, it becomes a difficult environment for banks to manage in," said Thomas Russo, who helps invest $3 billion at Gardner, Russo & Gardner in Lancaster, Penn.
Banks are struggling as tight capital markets force them to write down some holdings as investors take less risk.
Meanwhile, falling housing prices are making it harder for homeowners to refinance, adding to delinquencies, and leaving some commercial real estate borrowers strapped for cash.
Federal Reserve Chairman Ben Bernanke said Monday that the housing slump will likely be a "significant drag" on economic growth through early 2008.
"Clearly, weakness in the housing market and higher delinquencies in mortgages remains a headwind for the banking industry," said Mark Batty, an analyst at PNC Wealth Management in Philadelphia, which invests $77 billion.
In afternoon trading, Wells Fargo shares fell 3.8 percent, U.S. Bancorp fell 0.6 percent, Regions fell 1.65 percent, and KeyCorp fell 5.3 percent.
Net income at San Francisco-based Wells Fargo rose 4 percent to $2.28 billion, or 68 cents per share, from $2.19 billion, or 64 cents, a year earlier.
While profit set a record, analysts, on average, expected 70 cents per share, as compiled by Reuters Estimates. The bank reported $490 million of write-downs related to mortgages, and said its lending margin declined.