NEW YORK - Some of America's biggest banks are due to release their latest earnings this week, but investors are likely to be disappointed as many banks are expected to announce fresh losses.
Wachovia bank set the tone Monday, as it revealed a first quarter loss of 350 million dollars which it largely blamed on the ailing US housing market, but also on mounting auto loan defaults.
Shareholders are bracing for the latest quarterly earnings due from two larger banking names, Merrill Lynch and Citigroup who are due to post their earnings reports on Thursday and Friday respectively.
Another banking titan, JPMorgan Chase, is due to pull back the curtain on its earnings Tuesday, but analysts say it has been faring better than many of its rivals who have been roiled by the housing slump and a related credit crunch.
Analysts expect Merrill and Citigroup to report losses for a second straight quarter as they seek to shore up their tattered balance sheets with new capital infusions.
Wachovia's chief executive, Ken Thompson, became the latest bank CEO to express dismay Monday, and similar sentiments are likely to be repeated as the week progresses.
"I'm deeply disappointed with our first quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," Thompson said.
Analysts say the losses will likely persist until banks can purge ailing mortgage investments from their stressed balance sheets.
"The negative outlook is in line with those of other major financial institutions whose investment banking businesses are experiencing declines in profitability and whose mortgage portfolios are located in the weakest residential housing markets," analysts at Standard and Poor's said of Wachovia's losses.
The mounting losses, Citigroup endured a fourth quarter loss of 9.8 billion dollars which it largely blamed on the housing market meltdown, caught the attention of the world's financial chiefs this past weekend.
Group of Seven (G7) finance ministers and central bank chiefs broadly embraced a reform package, aimed at easing global financial strains, drawn up by the Financial Stability Forum during weekend meetings in Washington of the International Monetary Fund and World Bank.
The G7 agreed that banks should "fully and promptly" disclose their risk exposures and write-downs, and improve their valuations on complex securities within 100 days to stop a worsening of the global credit crunch.
The liquidity squeeze was triggered in large part by US banks which have cut back lending due to ballooning losses on mortgage investments.
US banks are racing to raise fresh capital from deep-pocketed investors, including cash-rich sovereign wealth funds such as the state-run Abu Dhabi Investment Authority, to help offset the losses.
Washington Mutual, another troubled US bank, said last Tuesday it was set to receive a seven-billion-dollar cash infusion to help restore its finances which have also been afflicted by mortgage losses.
WaMu, as it is known, also told investors it anticipated posting a first quarter loss of 1.1 billion dollars. The bank, which traces its history to 1889, is due to announce its earnings on Wednesday.
Although most of the losses so far have been attributed to housing, swelling losses on car loans and credit cards are worrying some economists who say the banking and housing problems have likely tipped the economy into a recession.
bur-jjc/ksh
04/14/2008 20:14 GMT