Re: banks... Message 15572812
Bank One Warns of Spike in Bad Loans
By Eileen Kinsella
Staff Reporter
3/27/01 6:45 PM ET
Bank One (ONE:NYSE) sounded the alarm on bad loans yet again, warning of sharply rising credit losses in coming quarters.
In its annual regulatory filing, made Tuesday, the Chicago-based bank said it expects commercial credit losses for the next several quarters "will at least double" the typical level of recent years, which has been around 0.40% of loans.
"The main part of the 10-K is that they expect credit quality to get worse for several quarters," says Mike Mayo, banks analyst at Prudential. "A lot of people have expected they would get bad for two more quarters in the industry and then it would plateau. Well, here's one major bank saying several quarters," says Mayo. (He rates Bank One a sell.)
Bank One chalked up the expectation of higher losses to a continuation of trends from 2000 and the outlook for a weaker economy in the current year. Indeed, 2000 was a decidedly rough year for the bank operationally, though the optimism that surrounded the hiring of former Citigroup (C:NYSE) executive Jamie Dimon as CEO drove the stock 15% higher.
In the most recent quarter, Bank One surprised investors with a 44-cent loss, reversing the expected 45-cent profit. Contributing to the shortfall was $1 billion Bank One set aside to bulk up its loan loss reserve, which is money set aside to cover the cost of bad loans.
The bank said for the year 2000, nonperforming commercial loans rose to $1.76 billion from $1.05 billion at the end of 1999. (Nonperforming loans are those that are past due but which have not been charged off yet.) Bank One said the increase was "primarly due to portfolio deterioration across several industries and acquisition finance transactions." The total amount of charge-offs in commercial loans was $597 million, or nearly double the $306 million in charge-offs for 1999.
Making the outlook even dimmer, Bank One took the added step of saying that a "deep recession would cause dramatically higher credit losses than currently anticipated."
Consumer credit fared better than commercial loans. Bank One reported "modest deterioration" in its consumer and credit card portfolios, which it said reflected higher levels of nonperforming consumer finance and home equity loans. Meanwhile, the charge-off rate on managed credit cards improved slightly as a result of a securitized charge-off and the bank's early adoption of new consumer charge-off guidelines.
Net charge-offs on non-credit card consumer loans also improved due to Bank One's early adoption of consumer credit guidelines. Bank One closed at $36.10 Tuesday, up $1.01.
Bank One is certainly testing investor patience. On last quarter's conference call a spokesman said he thought it would be the last "messy" quarter for a while and said the future would start on "1/1/01." It looks like the future will start later than that. |
