Many of the major banks that released their earnings this week, including J.P. Morgan Chase, Wells Fargo, KeyCorp and U.S. Bancorp highlighted the fact that their non-performing loan rates were slowing, but the piles of bad loans sitting on lenders balance sheets continue to increase, indicating that banks will continue to face major loan losses for several quarters to come despite a newly optimistic attitude in their earnings reports.
Wells Fargo, the fourth-largest bank in terms of assets, reported a third-quarter net-income of $3.2 billion and stated that the rate of non-performing loans, or loans that may become considered uncollectable is “slowing”, but not all investors agree with Wells Fargo’s rosy assessment. Many investment analysts believe that Wells Fargo’s financial issues are spiking, primarily because of loan-losses from Wachovia Corp, which Wells Fargo purchased last year. During the third quarter, Wells Fargo’s non-performing loans grew to 27.9%, totaling $23.5 billion. During the second quarter, non-performing loans grew by 45.4%.
Cleveland-based KeyCorp, posted a loss of $397 million because it set aside $733 million for current and future loan losses. Despite KeyCorp’s losses, KeyCorp CEO, Henry Meyers, told investors, “We saw an increase in nonperforming assets, but at a slower pace than in recent quarters.” Key Corps losses primarily came from commercial real estate construction projects, but KeyCorp was quick to point out that delinquencies in its commercial real estate portfolio fell last quarter.
U.S. Bancorp posted a net income of $603 million this year. The bank’s CEO, Richard Davis, also echoed a similar sentiment during a conference call with investors. Davis stated, “Although we continue to operate in a challenging and uncertain economy…these past three months have brought us beginning signs of stabilization and even some improvement in the markets we serve, I would consider this quarter to be much closer to business as usual than we have seen in quite some time.”
During the third quarter, U.S. Bancorp purchased a number of failed banks that helped pad its revenue. Its nonperforming loans and charge-offs increased at a slower rate than they did during the 2nd quarter, but the banks CEO says he expects more loan losses during the fourth quarter.
