by Calculated Risk on 5/16/2009 02:14:00 PM

From the Boston Globe: Sovereign Bancorp reports $817.3m loss

Sovereign Bancorp ... lost $817.3 million in the quarter, compared with a net income of $100.1 million in the same period a year ago. It also reported that it set aside $505 million for bad loans, up from $135 million a year ago. The Philadelphia-based holding company owns Sovereign Bank and was acquired in January by Spain's Banco Santander.

The bank's total allowance for loan losses was $1.3 billion at the end of the quarter. Sovereign also has a large exposure to soured investments: nearly $1 billion in unrealized losses on investment securities - losses it could have to write down as permanent in the future.

It had total assets of $78.1 billion ...

Soverign Bancorp wasn't one of the 19 stress test banks (assets are less than $100 billion) and they are now owned by Banco Santander. But this is an example of the next tier of banks - and of more losses coming.

Click on graph for larger image in new window.

This pie chart shows the breakdown of loans by category that are held for investment ($53.7 billion) from Sovereign Bancorp's 10-Q SEC filing.

If we use the indicative loss rates from the Federal Reserve (more adverse scenario) for each loan category, this would suggest $4.0 to $5.3 billion in losses over the next two years. Note: this doesn't include losses on investment securities.

As an example, the two year indicative loss rate for CRE, nonfarm, non-residential are 7% to 9%. Sovereign Bancorp shows $10.4 billion in assets in this category (excluding C&D), and that suggests two years indicative losses of $730 to $940 million. Soverign might do better or worse depending on their portfolio, but this suggests there are more losses to come.