Triple Play: Bank of America, Wachovia, PNC Warn on Q4 Earnings

In separate filings with the Securities and Exchange Commission today, three large banks warned of more losses in pending fourth quarter results.

PNC Financial Services Group, Inc. adjusted its fourth quarter earnings guidance downward, saying it now expects to report diluted earnings per share within the range of $0.60 to $0.75 and adjusted diluted earnings per share within the range of $1.00 to $1.15. MarketWatch news services reported that analysts had expected profit of $1.39 per share.

The kicker? A large chunk of the earnings pressure is expected to come from commercial mortgages, beyond just residential mortgage troubles:

This revised expectation is primarily due to lower noninterest income attributable to valuation adjustments on $1.5 billion of commercial mortgage loans held for sale and lower than historically reported trading results due to unprecedented market price volatility, an additional anticipated increase to the provision for credit losses primarily related to residential real estate development, and an increase in the Corporation’s BlackRock/LTIP shares obligation due to a significant increase in the price of BlackRock’s common shares.

PNC noted that its expectations for poor commercial loan performance were driven by general market liquidity pressures it characterized as “unprecedented,” and not by credit quality concerns.

BofA sees ‘disappointing’ quarter
Prepared remarks by Bank of America CEO Ken Lewis, delivered at a Goldman Sachs investor conference today, also highlighted expectations for a poor fourth quarter. Lewis said the economy is “definitely” slowing, but not enough to lead the bank to forecast a recession; BofA currently expects GSP to grow at 1.5 to 2 percent next year, he said.

In discussing what lies ahead:

At Bank of America, we currently expect provision expense to be approximately $3.3 billion in the fourth quarter, reflecting increased reserves of about $1.3 billion. In round numbers, about one third of the increase is due to growth and seasoning in our consumer lending portfolios with the remaining two thirds due to deterioration principally in consumer real estate and some in small business …

A number of participants - including Bank of America - have forecast sizeable writedowns particularly in CDOs. Based on conditions today, we expect those writedowns will be larger than have already been reported - although obviously we won’t know our final numbers until we close the fourth quarter.

Lewis did not speculate on whether BofA would report a quarterly loss for Q4, but said “you certainly can assume results will again be quite disappointing.”

Wachovia doubles loan loss provisions
Wachovia also set the table for a poor fourth quarter today, saying in an SEC filing that “market-disruption valuation losses” — that’s codespeak for CDO and RMBS writedowns — in October and November alone approximately equalled the losses reported for the entire third quarter.

Translation: Wachovia will report even greater write-downs in the fourth quarter than it did in the third quarter.

Wachovia also doubled its expectations for loan losses, saying it expects approximately $1 billion in reserves beyond net charge offs for the fourth quarter. The bank had orginally said it expected that number to be between $500 and $600 million.

HW readers know that after the third quarter earnings season, I’d warned that the fourth quarter would likely be worse. We’re now seeing proof of that.