$6bn in Q4 writedowns at Bank of America and Wachovia

Bank of America and Wachovia, the second and fourth biggest banks in the US by assets under management, have posted large writedowns for the fourth quarter of 2007 as depreciating mortgage-backed securities (MBS) continue to punish banks’ bottom lines.

Bank of America revealed $5.28 billion in writedowns related to collateralised debt obligations (CDOs), "reflecting the impaired value of the underlying assets based on expected credit losses, the lack of demand in the market-place and the impact of credit rating agency downgrades of the securities," the bank said in its earnings statement.

The writedowns exceeded chief financial officer Joe Price's estimate in November that fourth-quarter revaluation of CDOs and MBSs at Bank of America would be about $3 billion.

Losses were more modest at Wachovia, which recorded $1.7 billion in writedowns, but the falling value of mortgage-related securities almost wiped out fourth-quarter returns, with the bank posting just $51 million in clear profit for the last three months of 2007, a 98% decrease from the same period the previous year.

Wachovia, which also revealed $1.1 billion in writedowns back in October 2007, is considered to have so far escaped the subprime crisis unscathed compared with the large Wall Street banks that took large positions in CDOs.

Last week, Merrill Lynch announced an $8.2 billion loss for the fourth quarter following an $11.5 billion writedown of asset-backed securities with subprime exposures. However, if revaluations of assets at non-mortgage-related arms are counted, overall writedowns at the bank were more than $16 billion.

Merrill's losses were announced just a day after JP Morgan revealed $1.3 billion in CDO markdowns and two days after Citigroup admitted a $9.83 billion loss and $18.1 billion writedown for the last three months of 2007.

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