MercoPress. South Atlantic News Agency

US banks report more write downs and hunt for fresh funds

US banks continue in turmoil reporting lower profits, write-downs and hunting for fresh funds Bank of America reported a 77% drop in profits in the first three months of 2008, hit by trading losses and a 6 billion write-down to cover bad loans. National City Corporation from the Midwest admitted it was looking for 7 billion US dollars.

The Wall Street giant said net profits fell to 1.2 billion in the quarter to March, from 5.26 billion the year before. Bank of America has been caught up in the global credit crisis, rooted in the collapse of US sub-prime home loans. Banks invested in this area were hit, but there are signs that defaults on loans are spreading beyond mortgages. "Despite revenue growth in most of our businesses, these results clearly did not meet our expectations," said Bank of America chairman and chief executive Kenneth Lewis. "The weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance," he added. Charlotte-based Bank of America said trading losses accounted for 1.31 billion of the profit fall, much smaller than the 5.14 billion trading loss revealed in the last three months of 2007. The bank which is less geographically diversified than some of its Wall Street rivals, expects a growing number of house buyers, small businesses and house builders to default on their loans and it has set aside 6 billion to cover this. This is 4.78 billion more than a year ago and reflects its deep exposure to the US mortgage market after its January purchase of the nation's biggest mortgage lender Countrywide. Countrywide was rumored to be close to bankruptcy after a decline in new business and record foreclosures. Mr Lewis gave a cautious outlook, predicting US economic growth to be "minimal at best in the second quarter with a slight pickup in the second half of the year". "We remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices," he said. Further bad news came from the long list of US banks seeking fresh funds. This time it was one of the US Midwest leading banks with a staff of 32.000. National City Corporation said it was seeking to raise 7 billion US dollars from investors to shore up its finances after bad home-loan losses mounted. The firm has set aside another 1.4 billion to cover the cost of mortgage loans unlikely to be repaid. To raise funds, National is selling a stake to private equity firm Corsair and issuing shares to other investors. But analysts were unimpressed with the proposal, which would see 126 million new shares issued at a vastly discounted price, and National's shares fell 28% in Monday trading. Although the loss was less than the 333 million reverse it suffered in the final quarter of last year, the firm warned that the home loan market remained "difficult" and announced that it was cutting its dividend payout to shareholders. "The US housing and mortgage environment deteriorated significantly over the course of the first quarter," said CEO Peter Raskind. "While we are clearly disappointed by the quarter's weak profitability, we feel that it is both necessary and prudent to build reserves in anticipation of a continued difficult environment for housing-related loans". Corsair will spend 985 million US dollars on buying shares in National a move which Mr Raskind said was a vote of confidence in the firm's long-term prospects. Bank of America's earnings report came after rivals Citigroup and Merrill Lynch, unveiled net losses last week and announced aggressive job cuts to cut costs. Wachovia, the fourth-largest bank in the US, also reported a loss of 393 million US dollars in the first quarter. The International Monetary Fund has forecast that potential losses from investments linked to the precipitous decline in the US housing market as well as sour loans related to commercial property, consumer credit, and company debt could extend to almost one trillion US dollars.