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25 April 2024

Major US banks post huge losses on investments

Robert Kelly (SUPPLIED)

By Reuters

Three US banks – State Street Corp, US Bancorp and Bank of New York Mellon Corp – reported substantial losses on investments and sharply lower profits, and investors pummeled shares of the giant institutional money managers.

State Street shares tumbled 59 per cent after the company reported $10 billion (Dh36bn) in unrealised losses on investments and commercial paper, and said quarterly profit fell 71 per cent. Standard & Poor's lowered State Street's credit rating.

Meanwhile, Bank of New York Mellon's profit plunged 88 per cent, hurt by securities losses and lower fees as client assets declined.

It reported earnings two days earlier than planned in the wake of State Street's results, and its shares slid 17.2 per cent.

"Frankly, it's pretty good to see 2008 in the rear-view mirror," Bank of New York Mellon Chief Executive Robert Kelly said on a conference call.

Fourth-quarter profit at Boston-based State Street fell to $65 million, or 15 cents per share, from $223m, or 57 cents, a year earlier.

Operating profit dropped five per cent to $511m, or $1.18 per share, topping the average analyst target of $1.14 per share, according to Reuters Estimates. Revenue rose eight per cent to $2.67bn.

Custodial assets fell 21 per cent to $12.04 trillion, and assets under management fell 27 per cent to $1.44trn.

The company took a charge of $450m to support stable value funds whose net asset value had fallen below their $1 per share target. Many investors own the funds in lieu of cash.

State Street also said revenue may be unchanged this year after eight per cent to 12 per cent annual growth in recent years.

In an interview, State Street Chief Executive Ronald Logue linked the share price decline "to the story of unrealized investment losses, which is so overpowering", but he said State Street's fundamentals are sound.

Quarterly profit at New York-based Bank of New York Mellon fell to $61m, or two cents per share after preferred stock dividends, from $520m, or 45 cents, a year earlier.

Results reflected a charge of 65 cents per share resulting from $1.24bn of securities write-downs, largely for debt tied to riskier "Alt-A" mortgages.

Excluding the write-downs, operating profit was $53m, or five cents per share, the bank said. Revenue fell 24 per cent to $2.89bn. Results also included a charge of nine cents per share for severance and other charges tied to job cuts.

Revenue from securities servicing fell seven per cent to $1.46bn, while asset and wealth management fees dropped 26 per cent to $657m.

Custodial assets fell to $20.2trn from $22.4trn three months earlier, while assets under management fell to $928bn from $1.07trn.

US Bancorp, one of the 10 largest US banks, said fourth-quarter profit fell 65 per cent, hurt by costs to boost credit reserves and write down investments.

Net income for the Minneapolis-based lender fell to $330m, or 15 cents per share, from $942m, or 53 cents, a year earlier.

Results reflected $632m of net charge-offs, nearly triple the year-earlier $225m level and within the $600m to $650m range the bank projected last month.

US Bancorp set aside $1.27bn for credit reserves; it had said the amount would be around twice the charge-off level.