THE BASIS POINT

US Bank Posting $1.2b Writedown, No Mention of Downey

 

US Bank is posting $1.2b in writedowns for the fourth quarter according to WSJ. This is due largely to loan losses. It’s unclear whether this includes the losses from recently acquired Downey Savings following the FDIC’s seizure of Downey. Downey was one of the top originators of Option ARM loans, which led to their demise and ultimate acquisition by US Bank.

U.S. Bancorp will post fourth-quarter net charge-offs of $600 million to $650 million and a roughly equal amount of loan-loss provisions, the bank’s chief executive, Richard Davis, said Thursday.

As a result, U.S. Bank will post about $1.2 billion in credit costs for the fourth quarter, or approximately even with third quarter net charge-offs of $1.25 billion.

“U.S. Bank is not seeing an increasing … curve in charge-offs,” Mr. Davis said. “We are not also seeing an improving slope. We’re just seeing a continuation of the same curve.”

He said U.S. Bank will post “impairment” or write-down charges of about $200 million $300 million, compared with third-quarter impairment charges of $411 million.

Mr. Davis did warn investors that nonperforming loans — or loans nearing charge-off — will continue to rise in the fourth quarter to about 1.14% to 1.18% of all loans. That’s a sharp increase from the bank’s third quarter nonperforming ratio of 0.88%.

As consumers continue to fall behind on their loan payments in increasing numbers, banks are working to restructure loans to offer those consumers lower monthly payments.

U.S. Bank is faring considerably better than its peers in keeping restructured loans from lapsing back into default, according to historical research.

Mr. Davis said “one third to 40% of the loans we restructured found their way to net charge-off.” That compares with higher rates of relapse that other banks are seeing. Many banks are seeing one of every two restructured loans return to delinquent status.

 

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