Biggest Real Estate Banks See Improvement in Loan Quality

For the most part, banks saw their nonperforming assets decline in the fourth quarter, according to quarterly financial results that have been released.

Some of the biggest real estate lenders - Wells Fargo, Washington Mutual, Citigroup and J.P. Morgan Chase - all reported declines in nonperforming assets during the fourth quarter.

Wells Fargo said that nonperforming assets declined by $57 million in the fourth quarter, improving to 0.66% of total assets, or $1.66 billion. That's down from 0.88%, or $1.72 billion on a dollar-volume basis, a year earlier.

Net charge-offs as a percentage of average loans declined to 0.78% from 0.94% in the prior year, Wells Fargo reported.

However, Wells Fargo reported that net charge-offs increased last year from the 2002 level and in the fourth quarter. Wells reported $465 million of net charge-offs during the fourth quarter, compared to $424 million in the fourth quarter of 2002.

For the full year, Wells had $1.72 billion of charge-offs, up from $1.68 billion of credit losses in 2002.

In the company's earnings release for the fourth quarter, chief credit officer Dave Munio said that credit quality continued to improve in the fourth quarter.

"Dollar losses have remained relatively consistent the last three years due to sound underwriting, well-managed collections, and a strong credit culture. As our retail portfolios continue to grow and season, we may see some increase in our dollar losses which we believe would be consistent with our credit profile," Mr. Munio said.

Wells Fargo said its allowance for loan losses, at $3.89 billion, provides over two times coverage of nonperforming assets and annualized loan losses.

Citigroup, the nation's largest banking institution and a top 10 mortgage lender, also reported improvement in its credit loss situation, despite taking a hit related to trading and credit losses stemming from financial fraud at Italian food maker Parmalat.

Citigroup reported that its total provision for credit losses fell 18% from the fourth quarter of 2002. Citigroup said its consumer loan loss rate was 3.2%.

Washington Mutual, the nation's largest servicer of home loans, reported that it was able to recover $202 million from loss reserves in the fourth quarter because of improvement in its nonperforming assets and the sale of its franchise lending portfolio.

In the company's earnings release, Washington Mutual's chief credit officer, Jim Vanasek, said nonperforming assets have declined to a level not seen since before Sept. 11, 2001.

"Today, our reserve coverage remains strong and is appropriate for the current risk profile of our loan portfolio," he said.

J.P. Morgan Chase also reported improvement in asset quality during 2003, with nonperforming commercial loans falling 42% from year-end 2002.

The company also said its commercial lending credit costs were $2.8 billion lower in 2003 than in 2002.

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