Bank of America, Wells Fargo Results Reflect Consumer Pain

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If there is an economic recovery, American consumers aren't feeling it yet. At least that's the verdict from the fourth quarter results reported by two of the largest U.S. banks -- Bank of America (BAC) and Wells Fargo (WFC) -- that write a huge volume of home mortgage loans and credit card debt.Brian Moynihan, the new CEO at Bank of America, tried to give a positive spin in his first conversation with investment analysts since taking over as CEO of the nation's largest bank on Jan. 1. "We believe the economy is stabilizing," said Moynihan. "Markets are opening, and customer sentiment is improving."

But the numbers spoke for themselves. Bank of America posted its second consecutive quarterly loss of 2009 in its fourth quarter totaling $5.2 billion, compared to a loss of $2.39 billion in 2008. Sure, part of the latest loss came from costs associated with repaying $45 billion of the government bailout under TARP, or the Troubled Asset Relief Program. But losses from its consumer lending business, which included home mortgages and credit card debt, grew to $8.42 billion, up from $5.54 billion in the previous year.

A close look at delinquencies also revealed that there are no signs that financial problems are abating for U.S. consumers, over 10% of whom are unemployed and struggling to get a job in a slow economic recovery, where few companies are hiring. The number of people who are finding it hard to make payments on their home and credit card loans have increased. At Bank of America, the amount of loans that are in default grew to $35.7 billion at the end of the quarter, up from $33.8 billion at the end of the third quarter.

The number of credit card loans that were unpaid for 90 days or more also rose in the quarter to $6.2 billion from $6.19 billion in the third quarter. Residential mortgage loans where the payments hadn't come in for 30 days or more soared to $19.36 billion, compared to $9.45 billion in the third quarter. Even taking into account the bank's purchasing of $9.4 billion delinquent government loan repurchases, the numbers were higher.

Vivek Juneja, an analyst at J.P. Morgan Chase (JPM), expects residential loan charge offs to continue to remain high and that as more people continue to lose homes "foreclosure-related expenses should continue to grow rapidly."

At Wells Fargo, a Better Outlook

Similarly, at Wells Fargo, a close look at the numbers weren't very heartening even though the headline number was positive. The bank reported a profit of $2.82 billion, despite paying back $25 billion of TARP. For the full year, it recorded a record profit of $12.27 billion, compared to $2.65 billion in 2008.

CEO John Stumpf said that he's seeing signs of economic recovery, but warned that "the unemployment rate is still too high and housing price improvement continues to be spotty. No doubt there will be surprises ahead."

Wells charged off a total of $5.89 billion of its loans, up from $5.52 billion in the previous quarter. And the number of loans where people were late also increased. For instance, delinquent residential real estate loans increased to $12.69 billion, up from $10.46 billion in the previous quarter.

Jason Goldberg of Barclays Capital noted that things are could be starting to look up for Wells Fargo customers. The bank had indicated that its consumer losses would peak in the first quarter of 2010, but that it is now "tracking somewhat better than these expectations." One can only hope that it will be the case for more consumers going forward.
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