2ND UPDATE: Regions Financial Reports 3Q Loss, Loan Sales
October 26 2010 - 1:16PM
Dow Jones News
Regions Financial Corp.'s (RF) third-quarter loss narrowed as
the southern U.S. bank sold troubled loans at a loss and reported a
troubling trend in nonperforming loans, auguring continued credit
troubles.
"The economic recovery in most of our markets remains slow and
uneven," Chief Executive Grayson Hall said in a press release, but
"this quarter's actions to dispose of problem assets will help us"
return the bank to profitability.
Regions lost $155 million in the third quarter, compared to $377
million a year earlier and $277 million in the second quarter.
Revenue was flat at $1.62 billion.
Regions' $108 million loss from selling loans contributed to a
larger loss than analysts expected. Shares fell 7.1% in recent
trading to $6.53.
Banks' sales of problem assets are in some ways an encouraging
sign because they help banks cleanse their balance sheets. Shares
of Fifth Third Bancorp (FITB) and BB&T Corp. (BBT) also dropped
when they reported third-quarter loan sales last week, though
shares of Fifth Third subsequently rebounded after management
discussed the sales during a conference call with analysts.
But unlike BB&T and Fifth Third, Regions isn't healthy
enough to reduce its reserve for future loan losses. Many banks
have been able to boost their earnings in recent quarters with such
reserve releases, while Regions continued to generate losses tied
to real-estate loans in beaten-down Southern markets.
Regions also suffered from a rising inflow of nonperforming
assets--that is, assets being added to nonperforming loans, which
is the opposite of the trend at many other banks.
Stifel, Nicolaus & Co. analyst Christopher Mutascio wrote in
a research report that, "Given these developments, we believe that
loss rates will remain elevated in the near term, and that the
company remains several quarters away from meaningful reserve
releases."
On a positive note, Regions said the loss from the oil spill in
the Gulf of Mexico, which hurt coastal communities where the bank
lends, would be $20 million at most, considerably less than $100
million it originally estimated.
Regions said it added $1 billion in soured loans to the
portfolio it sold or intends to sell. It sold about $350 million in
delinquent loans and distressed properties in a bulk sale during
the last quarter.
The bank currently has contracts for about $40 million to $50
million in loans sales, Chief Financial Officer David Turner told
investors during a conference call, and prices are similar to what
the bank fetched in the second quarter rather than in the
third.
In the third quarter, the markdowns on the sold loans "were
greater than we had previously experienced," he said. The "bulk
sale discount was about 40% of the book balance...On our additional
sales, we were probably averaging in the low-20s."
CEO Hall added, "We remain cautious in regards to bulk sale...We
still believe the best way to do these are strategic sales."
The loan-loss provision was $760 million, down from $1.03
billion a year earlier but up from $651 million in the prior
quarter. Net charge-offs, or loans lenders don't think are
collectible, rose to 3.52% of average loans from 2.86% and 2.99%,
respectively, as a result of the sold loans that needed to be
written off.
Regions reported a loss of 13 cents a share, compared with a
year-earlier loss of 32 cents a share, which included charges of
$41 million tied to branch consolidation. Analysts polled by
Thomson Reuters had most recently forecast a loss of 9 cents on
$1.62 billion in revenue.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
(Nathan Becker contributed to this article.)
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