Big banks: profits, but at a price
In this edition of The Earnings Journal, fourth-quarter 2008 results show the largest U.S. banks still generating profits – barely – while shovelling billions into loan-loss reserves.
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Wells Fargo remained in the black for 2008 with about $2.7 billion in profit, helped by strong mortgage and consumer lending, even as it took a hefty credit-reserve charge and absorbed Wachovia. Full-year mortgage originations topped hundreds of billions of dollars, including roughly $230 billion of residential mortgages.
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JPMorgan Chase reported Q4 2008 net income of $702 million, down sharply from $3.0 billion a year earlier, but still positive as trading, investment banking and relatively stronger credit quality offset rising mortgage and consumer losses.
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Bank of America, by contrast, swung to a fourth-quarter loss of about $1.8 billion as it digested Countrywide and Merrill Lynch, though it still finished 2008 modestly profitable on a full-year basis after heavy provisions and market-related writedowns.
The headline story: the biggest universal banks were hurting, but they were still standing – thanks in part to TARP capital and the ability to spread losses across diverse businesses.
Fannie Mae: deep in the red
If the big banks were wobbling, Fannie Mae was flat on the mat.
For Q4 2008 alone, Fannie reported a loss of roughly $25.2 billion, driven by fair-value hits, credit costs and securities impairments. For the full year, the GSE lost close to $59 billion, leaving a large capital hole and forcing it to request additional support from the U.S. Treasury while operating under federal conservatorship.
The contrast with the commercial banks was stark: where Wells, JPMorgan and even BofA could point to profitable segments, Fannie’s core guarantee and investment books were bleeding across the board.
Industry-wide: a historic quarterly loss
Zooming out, federal data show that the insured banking industry as a whole posted a record net loss in Q4 2008, with aggregate results revised to more than $32 billion in red ink once additional goodwill impairments were factored in.
For MortgageDaily readers, this instalment of The Earnings Journal underlines three themes:
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Profitability in late 2008 was highly uneven – strongest at diversified, deposit-rich banks, weakest at monoline mortgage and GSE players.
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Mortgage banking was still producing huge volumes, but credit costs and impairments were erasing much of the revenue.
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Government capital and guarantees had become central to keeping key parts of the system functioning at all.
By early 2009, earnings season had turned into a stress test in real time – and The Earnings Journal was the running scorecard.
