Three regional banking companies reported third-quarter results riddled with credit losses, and each said problems are migrating to varying degrees from the housing sector to commercial and industrial loans.
Fifth Third Bancorp and KeyCorp posted losses for the second straight quarter. M&T Bank Corp.'s earnings fell sharply from a year earlier, and earnings per share missed analyst estimates by a wide margin.
Executives from the companies spoke favorably of the government's plan to buy preferred shares in banks. Fifth Third and M&T executives said they would seriously consider participating, and KeyCorp chairman and chief executive Henry L. Meyer 3rd said the extra capital "would allow us additional capacity for loan growth."
In their earnings calls Tuesday morning, the three companies focused on deteriorating credit quality and what they are doing to improve it.
Mr. Meyer said Key is getting out of marine and recreational lending and will limit new student loans to those backed by the government. "This economic environment has pushed us to say, Let's exit these businesses that are a commodity and indirect," he said.
Jeffrey Weeden, the Cleveland company's chief financial officer, said national businesses such as automobile floor plan lending were also under pressure.
KeyCorp lost $36 million, after losing $1.13 billion in the second quarter, when it took a $1 billion charge tied to a federal court ruling involving leveraged leases. For the third quarter of 2007 it posted a $210 million profit.
Its per-share loss was 10 cents; Wall Street was expecting 16-cent profit Wall Street expected, according to Thomson Reuters.
The $101.3 billion-asset Key said its loan-loss provision fell 37.1% from the second quarter, though it was up fivefold from a year earlier, to $407 million. Net chargeoffs were $273 million, down by half from the second quarter but up fivefold from a year earlier. Nonperforming assets in Key's commercial and industrial portfolio rose 15.2% from the second quarter, to $364 million, accounting for roughly 30% of its nonperforming assets. Overall, nonperforming assets rose just 2.4% from a quarter earlier, to $1.2 billion, and the company said it believed NPAs had stabilized.
Daniel T. Poston, the interim chief financial officer at the $116 billion-asset Fifth Third, said certain parts of the C&I book at the Cincinnati company were squeezed, such as construction and rental real estate. Nonperforming assets in the portfolio rose 35% from the second quarter, to $557 million. "There are tremendous economic headwinds that will be felt more broadly in the C&I book and the commercial portfolio," Mr. Poston said in an interview.
Fifth Third reported a loss of $56 million, compared with a net loss of $202 million in the second quarter and a $325 million gain a year earlier. The per-share net loss was 14 cents; analysts were expecting an 18-cent profit, according to Thomson Reuters. The quarter also included hits from investments in Fannie Mae and Freddie Mac, settlement charges tied to Visa Inc., and another charge tied to bank-owned life insurance.
Fifth Third's loan-loss provision rose 30.9% from the second quarter and 577% from a year earlier, to $941 million. Net chargeoffs rose 34.6% from the second quarter and 303% from a year earlier, to $463 million, with losses "disproportionately" in Michigan and Florida. Nonperforming assets rose 28.5% from the second quarter and 301% from a year earlier, to $2.8 billion.
Rene Jones, M&T's chief financial officer, said in response to an analyst's question during a conference call that "the environment" had been "weighing a little bit" on the Buffalo company's C&I book, though he did not break out data for the portfolio. "I don't expect a lot of big shocks," he said.
Loans tied to automobile sales caused problems for M&T. Its earnings fell 54% from a year earlier, to $91.2 million, and earnings per share of 82 cents were 25 cents below the average analyst estimate, according to Thomson Reuters. The $65.2 billion-asset M&T said its loan-loss provision rose just 1% from the second quarter but nearly tripled from a year earlier, to $101 million. Net chargeoffs fell 5.1% from the second quarter but rose 327% from a year earlier, to $94 million. Residential-related loans made up most of the net chargeoffs, but losses tied to indirect auto lending jumped 18.2% from the second quarter and 85.7% from a year earlier, to $13 million.
Mr. Jones called the government's plan to buy preferred stock in banks a "great program" but said his company is "still evaluating" whether to participate.
Kevin Kabat, Fifth Third's chairman and CEO said it would give "strong consideration" to selling preferred stock. Fifth Third, which has been considering the sale of noncore assets to raise capital, may not need to do so if it pursues the government program, he said. "We believe either alternative would provide capital well in excess of our capital targets."
Mr. Meyer said he expects Key to apply for "more" than the minimum $1.1 billion it is eligible for under the program. It could apply for up to $3.3 billion in capital but probably would not, he said. "We will be discussing the amount over the next week or two with our team and with the board."