Sovereign Bancorp's 4Q Results Affected By Market Volatility, Warns To Take Over $2B In Charges

New York, NY (AHN) - Sovereign Bancorp Inc. on Monday warned that its fourth-quarter results will be affected by the current credit-crunch by taking $1.61 billion in pretax charges and recording a $738 million provision for bad loans and leases.

The total fourth-quarter pre-tax charges can be $2.35 billion due to issues ranging from goodwill impairments to rising loan-loss provisions.

The Philadelphia-based holding company added that $600 million of the charges are linked to consumer segment and about $800 million relates to the New York metro segment, bringing the total to $1.4 billion in pre-tax goodwill impairments.

The company's New York division, Independence Community Bancorp, was purchased in June 2006 that reported disappointing revenue and deposit growth, impairing the company's goodwill.

The company also reported that it is planning to close down its automobile lending originations in the Southeast and Southwest.

The company also expects $180 million in pre-tax charge for impairment of certain Fannie Mae and Freddie Mac preferred stock securities. Sovereign said it is not sure if the market values of the securities will recover in the near term from value impairment since the charge is warranted.

Sovereign reported that its loss reserves were up 1.28 percent by the end of 2007 from 0.88 percent of loans at the end of 2006, which would increase the company's reserve ratios close to its all time high.

The company also said in its report that it expects up to $27 million in quarterly pre-tax charges from losses on financing Sovereign provided for two unspecified mortgage companies after they defaulted on certain agreements.

"Sovereign is a fundamentally sound financial institution," Chief Executive Joseph P. Campanelli said, according to the Wall Street Journal.

Campanelli added, "Importantly, our capital exceeds the levels defined as 'well capitalized' by our regulators. Our forecasts indicate that Sovereign can maintain this designation even under a further worsening of industry conditions."

The company added that the various pre-tax charges will not affect its cash flows, tangible capital levels or regulatory capital ratios as Sovereign would reach its targeted 4.5 percent of tangible capital by the end of the third quarter during the current fiscal year.