M&T, Buffett Holding, Says Alt-A Loans Hurt Profits (Update1)
By Elizabeth Hester and Jody Shenn
March 30 (Bloomberg) -- M&T Bank Corp., the western New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., said low bids for the Alt-A mortgages it planned to sell will cut first-quarter profit by $7 million.
Earnings per share will be $1.50 to $1.60, also in part because M&T expects that rising default rates will require it to repurchase some Alt-A loans it previously sold, the company said in a statement. Analysts' estimates for net income currently range from $1.82 a share to $1.90, according to a Bloomberg survey.
Lenders this month have found demand falling for riskier mortgages even apart from so-called subprime ones. A unit of Cleveland-based National City Corp. that makes home equity loans through brokers today undid much of a loosening of guidelines it introduced only Feb. 28, rolling back standards further in some ways, as a result of demand from loan buyers ``evaporating quickly,'' according to an announcement obtained by Bloomberg.
``We introduced some products that we thought were still within the sanity range of where we should be and as we did that we almost immediately started to see the market contract,'' Ken Carter, the unit's head, said in an interview.
Financing Restricted
Like Citigroup Inc., it stopped financing home equity loans, which are often used in lieu of down payments on Alt-A mortgages, of more than 95 percent of a home values without proof or a borrower's pay.
The loans M&T planned to sell didn't attract the offers the bank expected at a recent auction. M&T cut their carrying value, resulting in after-tax costs of 7 cents a share. The loss on the loan buyback will cut profit by another $4 million, or 3 cents a share.
``Unfavorable market conditions and lack of market liquidity impacted M&T's willingness to sell Alt-A loans in the first quarter,'' the Buffalo, New York-based company said in the statement.
Surging defaults in subprime mortgages, those to borrowers with bad credit or high debt, have forced more than two dozen lenders to close or seek buyers in the past nine months.
Shares Decline
Shares of companies that offer less-risky mortgages including IndyMac Bancorp Inc. have fallen this year partly because investors were concerned Alt-A loans may go sour. Regulators including Federal Reserve Chairman Ben Bernanke said they don't see any ``spillover'' of defaults into safer mortgages, and IndyMac said yesterday the industry's loss rate on Alt-A is one-seventeenth the level of subprime loans.
Alt-A mortgages, short for Alternative A, fall shy of the credit criteria of Fannie Mae and Freddie Mac, the two largest U.S. mortgage companies. They often involve loans made with less proof of borrowers' income or assets, purchases of homes by investors or interest-only loans and ``option'' adjustable-rate mortgages, whose payments can fail to cover the interest owed.
M&T said it plans to keep $883 million of Alt-A home loans instead of selling them because management believes the bids don't reflect their value.
``We remain very committed to the business of providing residential mortgage loans to our customers and will continue to originate non-agency mortgage loans, albeit at modified standards,'' said Robert Wilmers, chief executive officer, in the statement.
Yesterday, Bear Stearns Cos., the biggest U.S. underwriter of mortgage-backed bonds, said the surge of defaults in subprime home loans won't spread to other parts of the mortgage market.
To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net ; Jody Shenn in New York at jshenn@bloomberg.net .
Last Updated: March 30, 2007 19:12 EDT |
