Mortgage pain persists for BofA, other big banks

CHARLOTTE/NEW YORK (Reuters) - In a sign that the U.S. banking sector's problems are far from over, lenders including Bank of America Corp reported falling bond trading revenue and mortgage lending weakness in the fourth quarter.

Stock investors shrugged off some of the problems and focused on banks' improving credit quality, and shares of many major banks outperformed the broader market.

But bond investors were much gloomier, focusing on still-weak credit conditions and lenders' shrinking loan books, both of which could weigh on future profits.

Bank of America, the largest U.S. bank by assets, posted a $993 million loss from its home loan and insurance segment, a much wider loss than in the same quarter last year.

Wells Fargo & Co , the fourth-largest bank, made fewer home loans during the quarter compared with the third quarter, but still managed to wrench higher fee income out of mortgage origination.

Even U.S. Bancorp , one of the healthiest of the largest U.S. banks, posted a 21 percent decline in quarterly mortgage banking revenue from the third quarter and wrote off home loans at an accelerating pace.

BANK OF AMERICA

Bank of America posted a quarterly loss of $194 million, or a $5.2 billion loss after preferred stock dividends and payback charges. The loss amounted to 60 cents a share.

That compared with a year-earlier shareholder loss of $2.4 billion, or 48 cents per share. Analysts' average forecast was for a loss of 52 cents per share, according to Thomson Reuters I/B/E/S.

Despite the loss, the Charlotte, North Carolina-based bank said credit was beginning to stabilize. While it set aside $10.1 billion in the quarter for credit losses, that provision was down 14 percent from the third quarter.

"We are approaching some sort of normality," said Mal Polley, chief investment officer of Stewart Capital Advisors. "Charge-offs will still be high, but it has definitely stabilized."

Net income in Bank of America's global markets unit was $1.2 billion, compared with a net loss of $3.7 billion a year earlier. The bank cited a more favorable trading environment and the acquisition of Merrill Lynch & Co a year ago.

The Merrill acquisition also bolstered the global wealth and investment management unit, where net income more than doubled to $1.3 billion.

Bank of America shares rose 5 cents to $16.37 in early afternoon trading.

WELLS

Wells Fargo posted a fourth-quarter profit of $2.82 billion, or 8 cents per share. Analysts on average had expected a loss of 1 cent per share, according to Thomson Reuters I/B/E/S.

Chief Financial Officer Howard Atkins said losses from the San Francisco bank's takeover a year ago of Wachovia Corp, which had been stricken by mortgage losses, are "tracking better than originally estimated at the time of the merger."

Wells Fargo's shares fell 27 cents or 0.9 percent to $28.01 in early afternoon trading. The broader market, as measured by the Standard & Poor's 500 index, fell 1.7 percent.

Meanwhile, Minneapolis-based U.S. Bancorp said fourth-quarter profit nearly doubled to $602 million, or 30 cents per share.

Loan growth was aided by acquisitions in 2008 and 2009 of failed banks in California and Illinois, in transactions assisted by the Federal Deposit Insurance Corp.

U.S. Bancorp shares were up 54 cents or 2.2 percent to $25.03.

In early December, Bank of America repaid $45 billion of government bailout money it had taken from the Troubled Asset Relief Program, part of a wave of repayments by the country's biggest banks. Wells Fargo repaid $25 billion, while U.S. Bancorp had repaid $6.6 billion earlier in 2009.

(Reporting by Joe Rauch in Charlotte, N.C. and Elinor Comlay in New York; writing by Christian Plumb and Dan Wilchins; editing by John Wallace and Gerald E. McCormick)