Huntington announces $300 million 4th quarter charge from mortgage-backed investment
11/16/2007COLUMBUS Huntington Bancshares Inc. said Friday it will take up to a $300 million charge in the fourth quarter stemming from a mortgage-backed investment, becoming the latest bank to report losses from the troubled mortgage industry.
The news sent the regional bank holding company's stock down 8 percent to a seven-year low.
Huntington said it will take an after-tax charge of 81 cents a share to bolster its loan loss provisions in the quarter for loans Huntington makes to Franklin Credit Management Corp., which makes subprime home loans to those with weak credit.
It also said it expects to report a loss in the fourth quarter. Analysts surveyed by Thomson Financial expected profits of 44 cents per share.
Huntington acquired the relationship with Franklin when it bought Sky Financial Group this year in a stock and cash deal worth $3.6 billion. Sky Financial had made loans to Franklin for 17 years that Franklin used to finance mortgages.
Jersey City, N.J.-based Franklin said Thursday that it is delaying filing its third quarter report and suspending the acquisition and origination of new loans because of the rapidly deteriorating real estate and mortgage origination credit market. It also said it expects a substantial increase in the money it sets aside for loan losses in the quarter.
Huntington said its loans to Franklin totaled $1.5 billion as of Sept. 30.
"Franklin's mortgages represent the underlying collateral for our loans to Franklin," Thomas E. Hoaglin, Huntington's chairman and chief executive, said in a statement. "As a result of this new information, we needed to reassess the collectability of the Franklin loans."
Huntington and Franklin were surprised by the portfolio's rapid, deep deterioration in the housing downturn, Hoaglin said in an interview. Huntington said it has stopped making loans to Franklin and that the charge fully addresses the Franklin exposure.
"The fact that this will result in a net loss for the quarter is regrettable and upsetting," Hoaglin said. "However, we are trying to be aggressive and realistic in our envisioning of current and future losses. We do not want to have to revisit this issue again."
Huntington said all of Franklin's payments to Huntington are current.
Friday's charge is the latest real estate-related charge Huntington has taken this year. The company has recorded a $60 million expense related to real estate loans in Michigan and northeast Ohio, and a $8.5 million loss from investments in hedge funds that were hurt by losses in the subprime market.
Huntington stock fell $1.33 to $14.75 in trading Friday. The stock traded as low as $14.38, well below it's old 52-week low of $15.57. The high for the past year has been $24.97.
Columbus-based Huntington Bancshares is a $55 billion regional bank holding company with more than 700 banking offices in Indiana, Kentucky, Michigan, Ohio, Pennsylvania and West Virginia.
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