NEW YORK (Reuters) - Sovereign Bancorp Inc <SOV.N>, the second-largest U.S. savings and loan, said on Monday it expects to take $1.58 billion in fourth-quarter charges, hurt by worsening credit quality and a tough mortgage environment.
By Jonathan Stempel
NEW YORK (Reuters) - Sovereign Bancorp Inc <SOV.N>, the second-largest U.S. savings and loan, said on Monday it expects to take $1.58 billion in fourth-quarter charges, hurt by worsening credit quality and a tough mortgage environment.
The Philadelphia-based thrift said the charges include $1.4 billion for goodwill and $180 million for some mortgage-related investments. Sovereign also plans to add $88 million to its reserve for bad loans, and write off $27 million for two defaulted mortgage-related loans.
Chief Executive Joseph Campanelli in a statement said Sovereign remains a "fundamentally sound financial institution," despite market and credit pressures. The company operates about 750 banking offices in eight Northeastern U.S. states, and ended September with $86.6 billion in assets.
!ADVERTISEMENT!Shares of Sovereign fell 60 cents, or 5.6 percent, to $10.08 in morning trading.
Sovereign said it expects to write off $600 million of goodwill related to consumer lending, which has been hurt by weaker credit and a decision to stop making some auto loans.
It is also writing off $800 million of goodwill for its New York-area operations, which consist largely of the former Independence Community Bank Corp. of Brooklyn. Sovereign said revenue and deposit growth have been lower than it expected at Independence, for which it paid $3.6 billion in June 2006.
Results also reflect a $180 million write-down related to preferred stock investments in mortgage financiers Fannie Mae <FNM.N> and Freddie Mac <FRE.N>.
Meanwhile, Sovereign said it will set aside $738 million for bad loans and leases, up from $650 million in the prior quarter. It also plans $27 million in charges related to financings to two mortgage companies that have defaulted.
In an interview Chief Financial Officer Mark McCollom said "we're significantly increasing our reserves to prepare for what we think could be weakening credit in 2008." He said Sovereign assumed "a conservative view of where the economy is going" in setting reserves.
Results at Independence were hurt by a difficult interest rate environment, rising competition for deposits, and credit deterioration, he said. Still, McCollom said: "We still view the New York metro market as an important part of our future."
Jay Sidhu, Campanelli's predecessor, engineered the Independence acquisition in June 2006, and at the same time sold a $2.4 billion stake in Sovereign to Banco Santander Central Hispano <SAN.MC> <SBP.N>. Investors criticized both transactions, and Sidhu was ousted in October 2006.
The Spanish bank eventually took a 24.99 percent stake in Sovereign. Analysts have said Sovereign might eventually be sold to Santander or another lender.
Sovereign plans to release quarterly results on January 23.
Through Friday, Sovereign shares had fallen 58 percent in the last year, compared with a 31 percent drop in the KBW Regional Bank Index <.KRX>.
(Reporting by Jonathan Stempel; Editing by Derek Caney and Dave Zimmerman)
