"The banks are still bleeding, just maybe not as such an advanced rate," said Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh
In a reminder of how bad things are, Citigroup on Friday reported a $8.29 billion loss in the fourth quarter and announced it was splitting itself in two. Bank of America reported a $2.39 billion fourth-quarter loss, hours after ironing out a deal for a fresh multibillion-dollar lifeline needed to digest troubled brokerage Merrill Lynch. Both banks have now taken $45 billion apiece in bailout money.
The ongoing losses and scramble for more cash have sent bank stocks into a free fall in recent days as investors worry about more problems ahead
- and the ramifications of an even bigger government role in trying to solve them.
More federal rescue money is on the way after the Senate on Thursday approved the release of another $350 billion for the ailing financial sector. But experts say even that won't prevent more bank losses stemming from the still-unfolding credit crisis.
The problem, analysts say, is that banks are still saddled with shoddy assets associated with subprime home mortgages, commercial mortgages and leveraged loans. As the economy gets worse and sheds more jobs, consumers and businesses increasingly are defaulting on these loans, eliminating revenue streams for banks and forcing them to mark down the value of those assets.
"The banks still have to account for sins of the past - the bad assets," said Bert Ely, an independent bank analyst. "Now with the bad economy, that causes even more losses and you get bigger and bigger holes in the balance sheets."
For the October-December quarter, Citigroup marked down $7.8 billion in securities and banking revenue, and $5.3 billion on the value of credit derivatives. It also lost $2.5 billion in private equity and equity investments, $2 billion in restructuring costs, and $6 billion to add to reserves. Citigroup shares fell 8.62 percent to close at $3.50.
Citigroup officials expect losses to grow as the economy worsens. One area of concern is credit cards
- the biggest source of cash for many consumers after their job. As unemployment grows, more people will have to rely on credit cards but will have less income to pay them off.
"There are some things you can influence, but there are environmental factors," Citigroup Chief Financial Officer Gary Crittenden said on a conference call with investors. He said the rising unemployment rate might not peak until mid-2010.
By splitting itself into two parts, Citigroup hopes to streamline its management and restore what was the nation's largest bank by assets to its former glory. Citicorp will focus on traditional banking around the world, while Citi Holdings will manage the company's riskier assets and investments.
Another area of worry for banks is commercial real estate.
JPMorgan mostly blamed commercial real estate for the $1.1 billion in mortgage-related write-downs it took in the fourth quarter. Bank of America recorded $853 million in commercial mortgage markdowns; Citigroup recorded $991 million; and Merrill Lynch had $1.13 billion.