In a sign that the problems in the US banking sector are far from over, declining bond trading revenue and faltering mortgage lending in Q4 have been reported by lenders, including the Bank of America Corp.
Stock investors have ignored some of the problems and instead focused on the improving credit quality of banks, and the shares of several major banks which have surpassed the broader market. However, bond investors were much gloomier, focusing on still-weak credit conditions and shrinking loan books of lenders, both of which could weigh on future profits.
Bank of America, the largest US bank in terms of assets, posted a loss amounting to US$993 million from its insurance and home loan segment, a much larger loss than in the same quarter in 2009.
The fourth-largest US bank, Wells Fargo & Co, made fewer home loans during the quarter compared with Q3. Although it still managed to wrench a higher fee income out of mortgage origination, it posted a surprising 22 percent rise in bad mortgage loans.
Even one of the healthiest major US banks, US Bancorp, posted a 21 percent loss in its quarterly mortgage banking revenue from Q3 and wrote off home loans at an accelerating pace.
“There’s no question that there’s still an issue here,” said Blake Howells, Equity Research Director at Becker Capital in Portland, Oregon. However, Howells does not see future mortgage losses as threatening to the banks’ existence.