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Sovereign Bancorp Losses

By Anonymous

From the Boston Globe: Sovereign Bancorp reports $817.3m loss

Sovereign Bancorp ... lost $817.3 million in the quarter, compared with a net income of $100.1 million in the same period a year ago. It also reported that it set aside $505 million for bad loans, up from $135 million a year ago. The Philadelphia-based holding company owns Sovereign Bank and was acquired in January by Spain's Banco Santander.

The bank's total allowance for loan losses was $1.3 billion at the end of the quarter. Sovereign also has a large exposure to soured investments: nearly $1 billion in unrealized losses on investment securities - losses it could have to write down as permanent in the future.

It had total assets of $78.1 billion ...

Soverign Bancorp wasn't one of the 19 stress test banks (assets are less than $100 billion) and they are now owned by Banco Santander. But this is an example of the next tier of banks - and of more losses coming.

Click on graph for larger image in new window.

This pie chart shows the breakdown of loans by category that are held for investment ($53.7 billion) from Sovereign Bancorp's 10-Q SEC filing.

If we use the indicative loss rates from the Federal Reserve (more adverse scenario) for each loan category, this would suggest $4.0 to $5.3 billion in losses over the next two years. Note: this doesn't include losses on investment securities.

As an example, the two year indicative loss rate for CRE, nonfarm, non-residential are 7% to 9%. Sovereign Bancorp shows $10.4 billion in assets in this category (excluding C&D), and that suggests two years indicative losses of $730 to $940 million. Soverign might do better or worse depending on their portfolio, but this suggests there are more losses to come.

Full post as published by Calculated Risk on May 16, 2009 (boomark / email).