After swinging to a $403.9 million loss, or $1.55 a share, in the fourth quarter, Marshall & Ilsley Corp. said Thursday that it would cut 830 jobs, or 8% of its work force, cancel 2008 executive bonuses, and slash its dividend by 31 cents, to a penny a share.
A year earlier, the Milwaukee company reported a $494 million profit.
M&I cited significantly higher credit costs from a year earlier, though the jump in both the loan-loss provision and chargeoff rate from the third quarter was particularly high.
Analysts on average had forecast a profit of 7 cents a share, according to Thomson Reuters.
"Our fourth-quarter results represent the challenging operating environments that confront banks," Gregory A. Smith, M&I's chief financial officer, said in a conference call with analysts Wednesday.
The company blamed the weak results on its battered residential construction portfolio, saying small and midsize residential developers are struggling to pay off loans as housing developments sit unfinished and home sales wane.
M&I's portfolio of commercial and residential development loans in Florida and Arizona were particularly soft, Mr. Smith said.
Loan losses rose 261% from a year earlier and 448% from the third quarter, to $850 million. Chargeoffs climbed 263% from a year earlier and 359% from the third quarter, to $679.8 million.
About 68% of the chargeoffs were in M&I's construction and development portfolio, and 14% were in its commercial loan portfolio.
Mr. Smith said his company's stash of sour loans is likely to continue growing through next year.
"The prevailing economic and national residential conditions will last well into 2009 and well into 2010 in some of our markets," he said. "We expect nonperforming loans to continue increasing over the next few quarters."
Gearing up for more bad times ahead, M&I said it would seek to reduce costs by $100 million a year, with the bulk of the savings coming from the job cuts, 80% of which have already been made.
M&I also virtually eliminated its dividend, reversing 36 years of increases. It had resisted reducing its dividend as its rivals reined in payments to shareholders last year.
The reduction was a "very difficult decision but a prudent one," Mr. Smith said. The company would consider raising it again after economic conditions improve.
M&I also reported that it has made $1.3 billion of loan commitments from the $1.7 billion of funds it received from the Treasury Department's Capital Purchase Program.
The $65 billion-asset M&I is the first sizable regional banking company to report fourth-quarter results. Bob Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co., said the weak numbers could spell trouble ahead for rivals like SunTrust Banks Inc., Colonial BancGroup Inc., and Fifth Third Bancorp. "Fifty percent of the banking community is still in denial on how bad things are," Mr. Patten said.
On Thursday, M&I's shares fell 26%, to $7.93.