As Jane's Addiction would scream, "Here we go!" * JULY 21, 2009, 12:51 P.M. ET Regional Banks' Loan-Loss Increases Stir Fresh Concerns By Matthias Rieker Of DOW JONES NEWSWIRES http://online.wsj.com/article/BT-CO-20090721-712545.html NEW YORK (Dow Jones)--Even in this troubled banking environment, the problems evident in the quarterly reports of several regional banks are catching investors by surprise. Second-quarter results released Tuesday by Regions Financial Corp. (RF) and Comerica Corp. (CMA) were the latest to show that regional banks are plagued by big increases in problem loans. Commercial real estate and construction loans are the main concern. Shares of the two banks were down sharply around midday Tuesday, even as major U.S. stock indexes were little changed. Regions shares were down 14% at $3.47, while shares of Comerica fell 9.9% to $20.56. Several bankers, carefully mincing words, have expressed optimism lately about certain loan portfolios where delinquencies appear to show early signs of stabilization. But soured loans already on the books will take several quarters to work themselves out and will likely dampen earnings for quarters to come. Regions reported a $188 million second-quarter loss, compared with a $206 million profit a year earlier. Though its loss of 22 cents a share was in line with analysts' expectations, investor sentiment was soured by news that nonperforming loans, those loans for which collection is doubtful, rose faster than expected. "Many investors have been concerned that Regions still has a long way to go in terms of loss recognition, and these numbers seemed to verify that," said Sanford C. Bernstein & Co. analyst Kevin J. St. Pierre. Loan losses at the Birmingham, Ala., bank increased in virtually all categories compared to the first quarter. Losses in bank's two biggest loan portfolios, business and commercial real estate, increased 45% and 6%, respectively. Fox-Pitt Kelton Cochran Caronia Waller analyst Albert Savastano said that the spillover of souring loans in commercial real estate loans tied to retailers and multi-family properties was particularly concerning. Regions has been struggling for some time with its real estate exposure to Florida and other Southern markets. Regions needed to raise the most capital relative to risk-weighted assets following the government-induced stress test for the top 19 banks. On a positive note, the bank said deposits rose and it continued to make new loans. Comerica, a commercial lender that has so far been somewhat isolated from the worst part of the real estate crisis, also surprised with a bigger than expected increase in soured loans. The bank is hopeful that losses this quarter will not rise from second-quarter levels, and that the performance will improve in the fourth quarter. The Dallas bank, however, noted during a conference call with investors that loan demand remains timid. Comerica, which relocated its headquarters to Dallas from Detroit two years ago, reported second-quarter income of $18 million, a 68% decline from a year ago but double the income from the first quarter of this year. Loan losses rose sharply in each comparison. "Up until this quarter the company has done a better job than most banks we cover in providing accurate guidance on loan losses," Stifel Nicolaus & Co. analyst Christopher Mutascio wrote in a research report. But second-quarter charge-offs "and management's outlook is now much higher than it was just three months ago." BB&T Corp. (BBT), a bank considered by many analysts to be more solid than most, reported a big jump in nonperforming loans in its quarterly report Friday, as did Zions Bancorp (ZION) on Monday. BB&T shares were off 3.9% at $20.17 in recent trading, while Zion shares fell 13.3% to $10.59. Citigroup Global markets analyst Greg Ketron believes Zions' rising loan losses will require about $900 million in fresh capital between 2010-2012, which he said "translates to potential (earnings per share) dilution in the 50% range." -By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com
* JULY 21, 2009, 7:04 A.M. ET Nordea CEO: Banks Will Suffer More Loan Losses By Anna Molin Of DOW JONES NEWSWIRES http://online.wsj.com/article/BT-CO-20090721-705316.html STOCKHOLM (Dow Jones)--The chief executive of the Nordic region's largest bank said lenders have yet to reach the pinnacle of their bad-debt problems as the worst recession in modern times will filter deeper into banks' books in coming quarters. "The risk for somewhat higher loan losses has increased," Christian Clausen, CEO of Nordea Bank AB (NDA.SK), told Dow Jones Newswires, refering to both Nordea and the sector in general. Clausen said banks should expect higher losses as the "worst recession in modern times" will trigger further bankruptcies and layoffs in coming years. Aside from its 3% of total lending exposure to the frail Baltic economies, Nordea is scrutinizing some hard-hit sectors in particular, including shipping, private equity and commercial real estate, which in total account for about 14% of its total lending. Impaired loans in those areas have steadily inched higher, albeit from low levels, and Nordea has seized assets as well as launched restructuring plans for some troubled customers. In the second quarter, it "satisfactorily" completed more than 10 restructuring cases in private equity alone, and Clausen said he expects the rate of company restructuring to increase. "Companies' restructuring and adapting to the new environment isn't going to go away," he said. "Of course, it depends on economic developments. We're seeing some positive signs now in the economy and if that accelerates maybe the recovery will come earlier. But right now I think we'll be well into 2010 before we see a real firm recovery." Nordea earlier Tuesday reported an 11% drop year-on-year drop in attributable net profit to EUR616 million and said loan losses and provisions rose for the sixth consecutive quarter to EUR425 million, about 10% of which were actual write-offs. The net profit drop wasn't as bad as some analysts had forecast, however. Clausen said loan losses and provisions could continue to rise before tapering off, although he added that he doesn't expect hugely higher losses than currently. The bank lifted its loan-loss ratio forecast for the full year to somewhat higher than the annualized rate in the fourth quarter, which amounted to about 50 basis points of total lending. The loan-loss ratio was 57 basis points in the second-quarter and 55 basis points in the first-half. Clausen blamed the global economic recession for the hardships, but said some rays of opportunities have emerged because of it. The bank is ready to use its recently reinforced capital buffer - strengthened by a EUR2.5 billion rights issue earlier this year - to grow both organically and through smaller add-ons, he said. "We might do some add-on acquisitions in the countries where we see banks that need a strengthening capital base," he said. "We're also going to see the continuation of the organic growth, which will require some capital." Clausen said he doesn't expect any major acquisitions until economic visibility improves. "We're only focusing on our core markets - the Nordic markets and, especially, Poland sounds interesting," he said. "But it depends on the restructuring in each market. We have seen banks being available in Denmark and, as you know, we also acquired part of Roskilde Bank A/S last year." Further buys in Denmark, which suffered a domestic property bubble and became the first European economy to dip into recession last year, may be easier than in other Nordic markets, he said. Clausen added that Nordea currently has no need for neither the Swedish nor the Danish state banking guarantee schemes and doesn't expect to raise more equity capital any time soon. "We are one of the strongest capitalized banks now and we will stay well-capitalized throughout this crisis," he said. Company Web site: http://www.nordea.com -By Anna Molin; Dow Jones Newswires; +46 8 545 130 91; anna.molin@dowjones.com