Stocks Decline on Fifth Third, Sun Trust

123jump.com Staff
22 Apr, 2008
New York City

U.S. stocks traded sideways after more banks report losses from risky loans and growing worries related to losses from the consumer banking. For now, banks are taking losses only in the residential mortgage loans but rising charges in the consumer and retail loans are expected to be just as bad. Fifth Third and Sun Trust reported sharp rise in net charge offs and loans loss provisions. Royal Bank of Scotland is forced to raise $24 billion in UK.

[R]10:30AM New York – U.S. stocks fell after more banks report higher loan loss provisions and charge offs.[/R]

U.S. stocks fell after 30 minutes of trading on more bad news from banks.

Royal Bank of Scotland reported a plan to raise $24 billon, in the largest ever capital raising in the UK after suffered losses in mortgage loans and it vastly overpaid acquisition of businesses from ABM Amro.

Sun Trust ((STI)) stock rose 45 cents to $52.76 after it reported net income in the first quarter of 2008 of $283.6 million, or $0.81 per average common diluted share, compared to $513.9 million, or $1.44 per share a year ago.

The company increased its provision for loan losses to $560 million, increasing the ratio of allowance to total loans outstanding to 1.25% as of March 31, 2008. During the quarter, the Company also recognized approximately $163.7 million in net valuation losses. The losses pertained primarily to mark-to- market valuation adjustments on trading assets and loan warehouses, as well as certain asset-backed securities that are classified as available for sale.

Through sales, maturities and pay downs, the Company has reduced its exposure to these distressed assets by over $1.0 billion since the end of 2007, leaving the quarter-end exposure at approximately $1.6 billion.

Estimated Tier 1 capital ratio fell to 7.25% from 7.6% and equity to total share assets increased to 10.21% from 9.76%. Non-performing loans total jumped to 1.67% from 0.57% as annualized net charge-offs to average loan increased to 0.97% from 0.21%.

Fifth Third Bancorp ((FITB)) reported first quarter 2008 earnings of $292 million, or $0.55 per diluted share, compared with $16 million, or $0.03 per diluted share in the fourth quarter of 2007 and $359 million, or $0.65 per diluted share, for the same period in 2007.

The first quarter results included a gain of $273 million pre-tax, or $0.33 per share after-tax, related to the redemption of a portion of our ownership interests in Visa, Inc., as well as the reversal of $152 million pre-tax in expenses, or $0.19 per share after-tax, representing a portion of the previously recorded litigation reserves, both related to Visa''s initial public offering.

Net interest income in the quarter rose 5% from the fourth quarter and 11% from a year ago to $826 million.

Mortgage banking net revenue totaled $97 million in the first quarter of 2008, a $71 million increase from the previous quarter and a $57 million increase from the first quarter of 2007. First quarter originations of $4 billion increased 49 percent sequentially and 41 percent from the prior year, driven by customer activity related to lower interest rates during the quarter. Strong originations resulted in gains on the sale of mortgages of $93 million, compared with $18 million in the fourth quarter of 2007 and $26 million in the first quarter of 2007.

Net charge-offs as a percentage of average loans and leases were 137 bps in the first quarter, compared with 89 bps in the fourth quarter of 2007 and 39 bps in the first quarter of 2007. Loss experience continues to be concentrated in Michigan and Florida and primarily related to consumer residential real estate loans as well as loans to residential real estate builders and developers. Michigan and Florida represented approximately 57 percent of total first quarter net charge-offs. Residential real estate losses were 27 percent of total net charge-offs, and losses on loans to residential real estate builders and developers were 15 percent of total net charge-offs.

Consumer net charge-offs of $135 million, or 158 bps, grew $36 million from the fourth quarter of 2007, driven primarily by losses in the residential real estate portfolio. Net charge-offs in Michigan and Florida represented 38 percent of consumer losses in the first quarter, up from 34 percent in the fourth quarter of 2007.

Home equity net charge-offs of $41 million increased $9 million compared with last quarter, primarily due to increased losses on brokered home equity loans reflecting borrower stress and lower home price valuations. Originations of these loans have been discontinued.

Net losses on brokered home equity loans were $23 million, or 55%, of first quarter home equity losses. Brokered home equity loans represented $2.6 billion, or 22%, of total home equity portfolio of $11.8 billion. Michigan and Florida represented 40% of first quarter home equity losses, up from 37% in the fourth quarter of 2007.

Net charge-offs within the residential mortgage portfolio were $34 million, an increase of $16 million, primarily as a result of declining property values on loans at foreclosure, with losses in Michigan and Florida representing 64% of losses in the first quarter, up from 58% in the previous quarter. Net charge-offs in the auto portfolio increased $5 million from the fourth quarter to $35 million.

The allowance for loan and lease losses represented 1.49% of total loans and leases outstanding as of quarter end, compared with 1.17% last quarter and 1.05 percent in the same quarter last year. Provision for loan and lease losses totaled $544 million in the first quarter of 2008, exceeding net charge-offs by $268 million.

Asian markets review

In Tokyo Nikkei 225 Index closed lower 148.73 or 1.09% to 13,547.82, in Hong Kong Hang Seng index increased 217.48 or 0.88% closed to 24,939.15. In Australia ASX 200 index lower 35.70 or 0.64% to close 5,564.60. In Malaysia KL Composite index decreased 0.70 or 0.05% closed to 1,279.30.

In South Korea Kospi Index decreased 12.99 or 0.72% to close at 1,787.49, in Thailand SET index closed higher 8.04 or 0.95% to 850.02 and Indonesia JSE Index edged decreased 46.79 or 2.00% to 2,289.10. Sensex index in India increased 44.54 or 0.27% to 16,783.87.