U.S. Banks Warn of Credit Problems

Kathleen Day Washington Post Service Friday, November 17, 2000

WASHINGTON Surprise announcements this week of larger-than-expected loan losses at two of America's largest banks have heightened worries that the financial industry will see a sharp jump in credit problems in the next 12 months. . A pessimistic outlook on loan losses was expressed in reports by brokerage firms, including Merrill Lynch Co. and Credit Suisse First Boston Corp. . The reports followed announcements this week by Bank of America, the largest U.S. bank, and by the sixth largest bank, First Union Corp., that their loan losses would jump in the fourth quarter. Both announcements largely stemmed from troubled loans to one company, Sunbeam Corp. . Analysts warned, however, that other banks were likely to see an up-tick in losses, which could add to pressure on bank stocks. . James Dimon, head of Bank One Corp., the fourth largest U.S. bank, said credit quality would get worse for the U.S. banking industry over the next several quarters, reiterating comments the company made last month in its third-quarter earnings report. . "Credit is deteriorating quarter by quarter, and we expect it to continue," he said in response to questions after a speech to executives Wednesday in Chicago. He refused to be specific about Bank One, a spokesman said. . Bank regulators have warned for months about eroding bank lending standards. In September, they issued an especially sharp alert, warning banks that an economic slowdown will make it harder for some highly leveraged companies to pay their bills. . Analysts said the problem Bank of America and First Union have with Sunbeam is isolated, meaning only one borrower is involved. "Still, it does speak to a bigger issue of large loans that are having problems," said Marni Pont O'Doherty, an analyst at Keefe, Bruyette Woods. . Bank of America said loan losses could more than double in the fourth quarter from the $435 million it reported in the third quarter. Judah Kraushaar, an analyst at Merrill Lynch, estimated that increase would translate into "charge-offs of around $1 billion" for the quarter. . Bank of America, in a filing Tuesday with the Securities and Exchange Commission, also said that growth of its troubled-loan list - borrowings that are shaky but not yet written off - would exceed the 13 percent increase it had in the third quarter. . "Despite the higher charge-offs," Mr. Kraushaar wrote in a report issued Wednesday, "we cannot assume that Bank of America is putting the credit risk issue behind at this point." . First Union said it expected to write off up to $125 million of "a single, large loan" of $450 million.

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< < Back to Start of Article WASHINGTON Surprise announcements this week of larger-than-expected loan losses at two of America's largest banks have heightened worries that the financial industry will see a sharp jump in credit problems in the next 12 months. . A pessimistic outlook on loan losses was expressed in reports by brokerage firms, including Merrill Lynch Co. and Credit Suisse First Boston Corp. . The reports followed announcements this week by Bank of America, the largest U.S. bank, and by the sixth largest bank, First Union Corp., that their loan losses would jump in the fourth quarter. Both announcements largely stemmed from troubled loans to one company, Sunbeam Corp. . Analysts warned, however, that other banks were likely to see an up-tick in losses, which could add to pressure on bank stocks. . James Dimon, head of Bank One Corp., the fourth largest U.S. bank, said credit quality would get worse for the U.S. banking industry over the next several quarters, reiterating comments the company made last month in its third-quarter earnings report. . "Credit is deteriorating quarter by quarter, and we expect it to continue," he said in response to questions after a speech to executives Wednesday in Chicago. He refused to be specific about Bank One, a spokesman said. . Bank regulators have warned for months about eroding bank lending standards. In September, they issued an especially sharp alert, warning banks that an economic slowdown will make it harder for some highly leveraged companies to pay their bills. . Analysts said the problem Bank of America and First Union have with Sunbeam is isolated, meaning only one borrower is involved. "Still, it does speak to a bigger issue of large loans that are having problems," said Marni Pont O'Doherty, an analyst at Keefe, Bruyette Woods. . Bank of America said loan losses could more than double in the fourth quarter from the $435 million it reported in the third quarter. Judah Kraushaar, an analyst at Merrill Lynch, estimated that increase would translate into "charge-offs of around $1 billion" for the quarter. . Bank of America, in a filing Tuesday with the Securities and Exchange Commission, also said that growth of its troubled-loan list - borrowings that are shaky but not yet written off - would exceed the 13 percent increase it had in the third quarter. . "Despite the higher charge-offs," Mr. Kraushaar wrote in a report issued Wednesday, "we cannot assume that Bank of America is putting the credit risk issue behind at this point."

http://www.iht.com/articles/1667.html . First Union said it expected to write off up to $125 million of "a single, large loan" of $450 million.

-- Martin Thompson (mthom1927@aol.com), November 17, 2000