Quarterly Results: First Quarter 2009

It is reassuring to see that four of the bank holding companies (BHCs) that failed the stress test show increases in total net income during the first quarter 2009 compared with 2008. The remaining BHCs (highlighted in red) indicate net losses or reductions in total net income for the first quarter 2009 compared with 2008. Click on the bank links for their corporate press releases.

Quarter ended March 31 (Dollars in millions)	Revenue		Total Net Income
	2009	2008	2009		2008
Bank of America	$35,758	$17,003	$4,247	$1,210
Citigroup	24,789	13,219	1,577	(5,111)
Fifth Third Bancorp	1,473	1,684	50	286
GMAC Financial Services	2,199	2,410	(675)	($589)
KeyCorp	1,106	1,241	(488)	218
Morgan Stanley	3,042	7,917	(177)	1,413
PNC Financial Services	3,871	1,821	530	377
Regions Financial	1,875	1,926	77	337
SunTrust Banks	2,239	2,225	(815)	291
Wells Fargo	21,017	10,563	3,045	1,999

Six out of 10 banks posted net losses or reductions in total net income for the first quarter 2009 compared with 2008:

Fifth Third Bancorp, Cincinatti, OH: $50 million net income

Fortune 500 Rank: 307

Profile: Banking, investment advising and other services for individual consumers, corporations and not-for-profit organizations. Fifth Third is one of the largest money managers in the Midwest.

“From the beginning of this current credit cycle, we have been aggressively dealing with our most problematic loan portfolios,” said Kevin T. Kabat, Chairman, President and CEO of Fifth Third Bancorp. Mr. Kabat stated, “During the fourth quarter of 2008, we took actions to further reduce the risk in these portfolios, primarily residential home builder and commercial non-owner occupied real estate loans in Michigan and Florida.” Due to increasing loan-loss reserves, Fifth Third’s first-quarter profits fell 19 percent. To cover future bad loans, it has set aside $544 million — a fivefold increase from a year ago.

GMAC Financial Services, Detroit, MI: $675 million net loss

Fortune 500 Rank: 78

Profile: Automotive finance, mortgage operations, insurance, commercial finance and online banking with operations in North America, South America, Europe and Asia-Pacific.

GMAC announced that “Results in the quarter were primarily attributable to continued pressure in mortgage operations related to valuation adjustments on mortgage servicing assets, weaker credit performance on both auto and mortgage assets, mark-to-market adjustments on derivatives, and an original issue discount related to the fourth quarter debt exchange.”

KeyCorp, Cleveland, OH: $488 million net loss

Fortune 500 Rank: 321

Profile: Banking, commercial leasing, investment management, and other products and services for individual consumers, corporate and institutional clients. KeyCorp’s 14-state network operates in the Northwest, Rocky Mountain, Great Lakes and Northeast regions.

Chief Executive Officer Henry L. Meyer III stated that “Our results reflect an extremely challenging operating environment and the expedient steps we continue to take to identify problem loans and to build Key’s loan loss reserves.” Specifically, the loss for the current quarter was primarily the result of taking an $875 million provision for loan losses, which exceeded net charge-offs by $383 million.

Morgan Stanley, New York, NY: $177 million net loss

Fortune 500 Rank: Not a public company

Profile: Investment banking, securities, investment management and wealth management services for corporations, governments, institutions and high net worth individuals. Morgan Stanley has more than 600 offices in 36 countries.

John J. Mack, Chairman and CEO, said, “Morgan Stanley would have been profitable this quarter if not for the dramatic improvement in our credit spreads – which is a significant positive development, but had a near-term negative impact on our revenues.” The firm realized net losses of $1 billion on real estate investments and a $1.5 billion drop in net revenue related to the tightening of credit spreads on some of its long-term debt. In September 2008, Morgan Stanley converted from an investment bank to a bank holding company. This allowed the firm to gain access to emergency TARP funds.

Regions Financial, Birmingham, AL: $77 million net income

Fortune 500 Rank: 245

Profile: Banking, trust, securities brokerage, mortgage and insurance products and services for individual consumers, businesses and corporations. Regions operates in 16 states across the South, Midwest and Texas.

“We are very encouraged by the strong performance of our core business, particularly our continued growth in households and customer deposits,” said Dowd Ritter, chairman, president and chief executive officer. However, Regions also said that its most stressed portfolios continue to be residential home builders, home equity second liens in Florida, and condominiums. Those stressed assets currently amount to $8.7 billion, or about 9 percent of the total loan portfolio.

SunTrust Banks, Atlanta, GA: $815 million net loss

Fortune 500 Rank: 193

Profile: Banking, credit, trust, and investment services for individual consumers, businesses and institutional clients. SunTrust operates 1,694 retail branches in the Mid-Atlantic and Southern regions.

James M. Wells III, SunTrust Chairman and Chief Executive Officer said “SunTrust, like other financial institutions, is still working through credit and earnings challenges as the weak economy continues to take a toll on performance.” The first quarter loss was entirely driven by the $715 million goodwill charge and increased reserves for loan losses. Specifically, this was largely due to a write-off on the sagging value of mortgage and real estate loans.

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Failed Stress Tests: Bank Profiles

In perspective, 2008 was a horrible year for financial services. Sectors in this industry include: investment banking, commercial banking, credit card issuers, brokerage firms, investment research, exchanges, rating agencies, etc. Within banks, some fared poorly or failed. Others merged with much larger banks to survive.

In this post, we take a closer look at the ten BHCs that failed the stress test. All have extensive networks of regional or national retail banking offices, ATMs and online banking. The unmatched convenience and award winning service make these banks the number one choice for many consumers and businesses.

BHC/Headquarters	Services Provided:
Bank of America: Charlotte, NC	Banking, investing, asset management and other financial products and services for individual consumers, small and middle market businesses and large corporations.
Citigroup: New York, NY	Consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management for individual consumers, corporations, governments and institutions.
Fifth Third Bancorp: Cincinnati, OH	Banking, investment advising and other services for individual consumers, corporations and not-for-profit organizations.
GMAC Financial Services: Detroit, MI	Automotive finance, mortgage operations, insurance, commercial finance and online banking.
KeyCorp: Cleveland, OH	Banking, commercial leasing, investment management, and other products and services for individual consumers, corporate and institutional clients.
Morgan Stanley: New York, NY	Investment banking, securities, investment management and wealth management services for corporations, governments, institutions and high net worth individuals.
PNC Financial Services: Pittsburgh, PA	Banking, real estate finance and asset-based lending, wealth management, and other services for individual consumers, businesses and corporations.
Regions Financial: Birmingham, AL	Banking, trust, securities brokerage, mortgage and insurance products and services for individual consumers, businesses and corporations.
SunTrust Banks: Atlanta, GA	Banking, credit, trust, and investment services for individual consumers, businesses and institutional clients.
Wells Fargo: San Francisco, CA	Banking, insurance, investments, mortgage and consumer finance for individual consumers, businesses and corporations.

At fiscal year-end December 31, 2008, four of these BHCs had negative total net income: Citigroup, Fifth Third Bancorp, KeyCorp and Regions Financial. While Citigroup’s revenues were $52,793 (mil.), Fifth Third, KeyCorp and Regions Financial are regional banks with much smaller revenue bases:

	Revenue	Total Net Income
(Dollars in millions)	2008	2008	2007
Bank of America	72,782	4,008	14,800
Citigroup	52,793	(27,684)	3,617
Fifth Third Bancorp	6,460	(2,113)	1,076
GMAC Financial Services	35,445	1,868	($2,332)
KeyCorp	4,279	(1,468)	919
Morgan Stanley	24,739	1,707	3,209
PNC Financial Services	7,190	882	1,467
Regions Financial	6,916	(5,596)	1,251
SunTrust Banks	9,093	796	1,603
Wells Fargo	41,897	2,655	8,057

Going forward, this post will include quarterly performance results for these (10) BHCs and all FDIC-insured institutions. In total there are 8,246 commercial and savings banks that are FDIC-insured. The FDIC generally issues results two months after each quarter on an aggregate basis. With that in mind, stay tuned for the upcoming quarterly results posted under “Financial Highlights.”

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