Marshall & Ilsley Corp. (MI), a diversified financial services company, on Tuesday said it expects to report a loss for the third quarter of 2009, owing partly to a $185 million special provision for loan and lease losses related to certain holding company loans. Additionally, the company said it expects a sequential decline in third-quarter nonperforming loans, for the first time in four years.
The company, the biggest bank in Wisconsin, expects to report a third quarter net loss in the range of $0.68-$0.70 per share. On average, 19 analysts polled by Thomson Reuters expect a net loss of $0.39 per share for the quarter with estimates ranging between $0.18 loss per share and $0.81 loss per share. Analysts' estimates typically exclude special items.
The company said it expects to record a special provision of about $185 million for loan and lease losses for the third quarter for certain bank holding company loans, in addition to the $390 million-$400 million provision for loan and lease losses previously anticipated for the third quarter.
According to the company, the special provision is due to certain recent events, including regulatory actions against certain of these bank holding companies, unanticipated difficulties and/or delays in capital raising transactions by some of them and significant deterioration in the loan portfolios of certain of these companies.
About 75% of these loans were current as of September 30, the company said. After third quarter charge-offs, the company's total amount of outstanding loans to bank holding companies was about $545 million.
With these additions, the total provision for loan and lease losses for the third quarter is expected to be in the range of $575 million-$585 million and the company anticipates net charge-offs in the range of $530 million-$540 million. Estimated charge-offs for the quarter include about $160 million related to the bank holding company loans. Marshall & Ilsley expects that the allowance for loan and lease losses as a percentage of total loans and leases will increase from 2.8% at June 30 to slightly over 3% at September 30.
The company also announced several improving credit quality trends for the third quarter of 2009. According to the financial services firm, nonperforming loans at September 30 are expected to decrease by about $170 million from the previous quarter, in what will be the first linked-quarter decline in nonperforming loans in four years.
The company expects the ratio of nonperforming loans to total loans to drop to about 4.9% at September 30. In addition, early stage loan delinquencies decreased by approximately $220 million or, 20%, from June 30 to September 30, the company said.
The company is scheduled to announce third-quarter financial results on October 22. After giving effect to the expected third quarter results, the company believes it will have a tangible capital ratio of about 7% at September 30, which remains among the highest in the industry, Marshall & Ilsley noted.
According to Mark Furlong, president and CEO of Marshall & Ilsley, "While we see some continuation of improvement in credit quality, and read these as hopeful signs of what's ahead, we will continue to manage the business as though the recessionary effects in the economy will remain for several more months. There simply are an inadequate number of consistent trends to reinforce the sentiments that the economy is stabilizing and better times are within sight."
Marshall & Ilsley is one of the hardest-hit companies by the housing crisis. The company adopted several measures aimed at cost reduction and also offered its stock to mitigate the pain of the mortgage losses.
Last month, Moody's Investors Service reportedly placed its ratings on the company under review for possible downgrade on concerns about its weak real estate portfolio and sizable deferred tax asset. In early September, it was reported that Fitch Ratings put the company's debt ratings on negative watch, owing to elevated loan losses.
MI is currently trading at $7.68, down $0.28 or 3.53%, on 7.93 million shares.
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