Magazine article American Banker

3Q Earnings: UnionBanCal C&I Portfolio Starting to Suffer Losses

Magazine article American Banker

3Q Earnings: UnionBanCal C&I Portfolio Starting to Suffer Losses

Article excerpt

Byline: Katie Kuehner-Hebert

UnionBanCal Corp. on Monday reported third-quarter profit well below analyst estimates and said loan losses are creeping into its commercial and industrial portfolio.

In the last time the San Francisco company reports earnings before Mitsubishi UFJ Financial Group Inc. of Tokyo acquires the shares it does not own already, the $62.6 billion-asset UnionBanCal said net income fell 18% from a year earlier, to $104.8 million, or 75 cents a share. The average estimate of analysts polled by Thomson Reuters was $1.09.

Though UnionBanCal has been struggling for several quarters with problem residential construction loans, it is now showing marked deterioration in commercial and industrial loans, said Philip B. Flynn, its chief operating officer.

"In the past, most of our problems have come out of the home builder segment, but we've anticipated that we would have more problems bleeding into the general economy," Mr. Flynn said in an interview Monday. "For the next few quarters, there's going to be a lot of pressure in the economy, which is going to be impacting our borrowers." The company said it saw deterioration in all types of C&I loans.

Joe Morford, an analyst at Royal Bank of Canada's RBC Capital Markets, said the company's provision for loan losses, at $117 million, was roughly 50% higher than the its earlier guidance of $65 million to $85 million, and depressed results.

UnionBanCal also posted an unexpected spike in commercial and industrial loan nonperformers (a fourfold increase from a year earlier, to $162 million) and chargeoffs (a fourteenfold rise, to $42 million), Mr. Morford said. The company had said in the second quarter that the C&I market was softening, and now "the spread of deterioration is starting to materialize," Mr. Morford said. "This is an ominous sign for what's in store for other banks in the West, and for the industry in general," he said. …

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