2Q EARNINGS: Regions Comerica - Regionals' Credit Execs Caught in the Spotlight

By Davis, Paul; Kuehner-Hebert, Katie | American Banker, July 22, 2009 | Go to article overview

2Q EARNINGS: Regions Comerica - Regionals' Credit Execs Caught in the Spotlight


Davis, Paul, Kuehner-Hebert, Katie, American Banker


Byline: Paul Davis and Katie Kuehner-Hebert

Regions Financial Corp. would have gladly welcomed questions from Wall Street that went beyond the company's growing credit issues.

Unfortunately there was no letup Tuesday during a conference call lasting more than an hour, as analysts zeroed in on unexpected second-quarter spikes in bad loans and chargeoffs, which contributed to a quarterly loss. Regions, meanwhile, acknowledged for the first time that problems had meaningfully spread beyond its housing-related portfolios.

Brian Foran, an analyst at Goldman Sachs Group Inc., apologized to management for "beating a dead horse" on the issue of credit, but he characterized a $1.75 billion rise in nonperforming assets as "sticker shock to a lot of investors."

Regions, of Birmingham, Ala., was not the only midsize banking company in the hot seat Tuesday when it came to credit. Comerica Inc. reported a second-quarter loss, too, and some skepticism greeted the company's relatively upbeat forecasts on credit quality and economic trends.

While many large banking companies relied on investment banking income, asset sales and other special items to boost results in the quarter, concern has mounted about the regionals considered more susceptible to geographic concentrations of bad loans.

Regions pointed to Florida, Georgia, North Carolina and South Carolina as its most worrisome states. Even Comerica - which has more far-flung geographic reach than the typical "regional" banking company - has had to isolate its worst markets.

Dale E. Greene, Comerica's chief credit policy officer, said during an interview that deterioration in its residential development book was nearing its peak. Though homebuilder-related chargeoffs were rising in Florida, he was seeing stabilization in California and resiliency in Texas, he said. He said commercial loans are deteriorating at a faster pace, particularly in the Midwest.

Regions had perhaps the most explaining to do after reporting a loss of $244 million, or 28 cents a share, returning to the red after a narrow first-quarter profit. Nonperforming assets rose 47% from the first quarter and more than doubled from a year earlier, to $3.43 billion, including what executives called the highest level of souring commercial real estate so far in the recession.

But it had very few specifics to offer, and its explanatory efforts seemed to fall flat on analysts' ears.

"It is a little bit hard to gauge about where we think the nonperforming levels will go," said Michael Willoughby, Regions' chief credit officer. He declined requests to estimate when losses might peak, instead saying he believed aggregate losses this year and next should fall between $3.4 billion and $5.9 billion.

For more than a year, Regions' executives had assured that problems were confined to homebuilders, home equity and condominiums. The $143 billion-asset company this time added "income-producing properties," particularly retail developments and apartments, to assets under pressure.

The loan-loss provision more than doubled from the first quarter and was nearly triple that of a year earlier, at $912 million. Net chargeoffs rose 26% from the first quarter and 135% from a year earlier, to $491 million.

C. Dowd Ritter, Regions' chairman and chief executive, said during brief comments on the call that chargeoffs "are likely to remain elevated" into next year. "While there are some signs that we may be near the bottom of this recessionary economic cycle, we can't presume a near-term rebound," he added. …

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