THE BASIS POINT

Rates Steady Ahead of Heavy Data Starting Tuesday: MARKET PREVIEW

Bank of America spent $1.5 billion on legal fees in the last three months of 2010. Sometimes we have trouble imagining big numbers. In the US, our median household pretax income is about $50,000. If a household were to work for 300,000 years, it would earn $1.5 billion dollars. More on BofA writedowns is in below’s quick round up of Thursday’s and Friday’s bank earnings.

Rates are steady to open the week, but there’s no real market data until tomorrow. The biggest economic event this week will be the Fed’s first rate decision and economic stance of 2011 which will be announced Wednesday after their two-day FOMC meeting. The week’s economic news begins tomorrow with S&P Case-Shiller home prices, Consumer Confidence, FHFA Housing Price Index, and the State of the Union Address. Wednesday we have the MBA applications index and New Home Sales, along with FOMC rate decision. Thursday has the usual Jobless Claims, but also Durable Goods & Pending Home Sales. Friday is the Employment Cost Index and GDP number for the fourth quarter along with the University of Michigan Consumer Sentiment survey. We also have $99 billion in 2yr, 5yr and 7yr Treasury auctions Tuesday-Thursday.

Roundup of Bank Earnings Last Thursday & Friday
Bank of America, among many other things the #2 residential mortgage lender and #1 servicer, reported a second straight quarterly loss, driven by write-downs in the value of its mortgage business. So far the purchases of Countrywide and Merrill Lynch are showing mixed results. In the fourth quarter, the bank recognized a $2 billion write-down in value of its mortgage business, and a $4.1 billion provision for future mortgage repurchase claims. Match that against BofA’s global banking and markets unit, which includes Merrill Lynch’s former investment bank operations, which reported profit of $724 million. The bank lost $1.57 billion, or 16 cents a share, compared with a loss of $5.2 billion, or 60 cents a share, a year earlier. Last year’s results included a one-time TARP charge of $4 billion. Without the mortgage business write-down, the bank earned $756 million, or 4 cents per share.

Fifth Third sold $1.7 billion in shares to help repay funds the US Treasury lent it, a small piece of the $118.5 billion that is still outstanding and owed to the US Government in total by all banks. Four of the 19 banks that were subjected to government stress tests have not repaid funds to the Troubled Asset Relief Program: Fifth Third, KeyCorp, Regions Financial and SunTrust Financial. The money from the 5 3 share sale will be combined with a 5-year bond issue to repay $3.4 billion in government loans. This comes after Fifth Third reported that non-performing assets fell 8% to $4.2bn in the fourth quarter from a year ago, versus total assets of $111bn. Quarterly net income was $270m, versus a loss of $160m a year earlier, as the bank released $190m of reserve funds.

PNC Financial Services Group reported record income for 2010, even as its residential mortgage banking unit saw earnings drop more than 35% during the fourth quarter due to high foreclosure costs. PNC had net income of $3.4 billion, or $5.74 per share, compared with 2009 net income of $2.4 billion, or $4.36 per share. Revenue was $15.17 billion, down from $16.23 billion a year ago. PNC’s residential mortgage banking unit earned $275 million for the full year compared with $435 million for 2009. The decline was driven by a “decrease in loan sales revenue from lower origination volumes and lower net hedging gains on mortgage servicing rights.” Earnings for the residential mortgage unit were $3 million in the fourth quarter compared with $25 million in the fourth quarter of 2009. Earnings declined primarily due to higher foreclosure-related expenses and, when compared to the previous quarter, by lower net hedging gains on mortgage servicing rights.

SunTrust reported earnings Friday, beating expectations. (KeyCorp and Regions Financial, which has not had a profit since early 2009, are next week.) SunTrust reported better credit and asset quality, and for the year the allowance for loan losses was $3.0 billion, a decline of $112 million from the prior quarter. Net charge-offs for the year were $2.9 billion, down $384 million from 2009.