More bad news from the banks
Bank of America, Wachovia and PNC all issue warnings about this quarter's results; news weighs on broader sector.
NEW YORK (CNNMoney.com) -- More troubling news erupted from the financial services sector Wednesday as some of the nation's largest banks warned of bigger-than-expected writedowns and admitted that this quarter's results would be disappointing.
The news rattled an already jittery sector, which has been hit hard by the credit crisis and recent market turmoil.
Shares of financial firms such as Citigroup (Charts, Fortune 500), which named its new CEO and chairman just a day earlier, lost nearly 7 percent in afternoon trading. Regional banks like Key Corp. (Charts, Fortune 500) and Regions Financial each fell about 4 percent. The KBW Bank Stock index (Charts), which tracks two dozen different banks, declined 3 percent.
Among the first to issue a warning was Bank of America CEO Kenneth Lewis, who said that the company now expected to report bigger-than-expected writedowns in the fourth quarter. Last month, the company warned it would take $3 billion in writedowns related to collateralized debt obligations.
Speaking at Goldman Sachs' Financial Services CEO conference in New York, Lewis added that the company would not know the final number until it delivered its fourth-quarter results in January.
"You certainly can assume results will be disappointing," he said. "But we do expect to be profitable in the fourth quarter."
Lewis added that the company was expecting to set aside about $3.3 billion for loan losses for the quarter - $1.3 billion more than it had originally projected.
Crosstown rival Wachovia (Charts, Fortune 500) followed suit, warning in an SEC filing that the value of its loan-backed securities lost $1.34 billion in value during the month of October and November, roughly equal to what the Charlotte-based bank reported when it delivered its third-quarter results in October.
Like Bank of America, Wachovia also warned that it expected its loan loss provisions to reach approximately $1 billion during the current quarter, almost double what it projected when it last reported results.
"We wanted you to know where we are as we sit here today," Wachovia's CEO and President G. Kennedy Thompson said during his presentation at the Goldman Sachs conference.
Adding to those woes was a warning from the Pittsburgh based PNC Financial Services Group which trimmed it fourth-quarter earnings outlook because of the changes in the value of its commercial mortgage loan portfolio and market volatility, which hit its trading results.
The company said it now expects to report profits between $1 and $1.15 a share. Prior to the announcement, the consensus among analysts was that the company would report earnings of $1.39 a share.
Wednesday's announcements mark the latest woes for an already troubled banking sector, which has been hit hard by an ongoing housing crisis, turmoil in the financial markets and seen billion of dollars evaporate from their balance sheets because of bad mortgage bets.
Earlier this week, Washington Mutual (Charts, Fortune 500), the nation's largest thrift, slashed its dividend, cut more than 3,000 jobs and warned it would take a loss in the current quarter as it tries to insulate itself from the broader housing and credit market crises.
This week's warnings also come just before the nation's brokerages begin reporting their fourth-quarter results. Lehman Brothers will kick off the earnings season, when it announces its results Thursday of this week. Goldman Sachs (Charts, Fortune 500), Bears Stearns (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500) are all expected to deliver their earnings next week.