Sovereign Takes $1.6B Charge Related to Acquisition, Market Turmoil
By Harold Brubaker, The Philadelphia Inquirer
Jan. 14–Sovereign Bancorp Inc. warned today that the nationwide downturn in the credit and capital markets exacted a $1.6 billion toll on the company in the 2007 fourth quarter.
About $800 million of the total charge the company will record was from the impairment of goodwill booked in the June 2006 purchase of Independence Community Bancorp in Brooklyn for $3.64 billion.
Sovereign, whose corporate headquarters is in Philadelphia though its chief executive is based in Boston, said difficult economic conditions resulted in disappointing revenue and deposit growth at Independence, the last of many acquisitions under former chief executive Jay S. Sidhu.
Another $600 million in goodwill write-downs came from the faltering consumer credit market, lower valuations for banks, and Sovereign’s decision to stop making car loans in the Southeast and the Southwest.
Automotive loans nationwide have been performing worse than expected, with charge-offs and delinquencies at or near historic highs, according to a report todayn by investment bank Friedman, Billings Ramsey & Co. Inc.
Other charges for the fourth quarter were $180 million related to the impairment of certain securities and and $27 million in losses on loans to mortgage companies that are in default.
In addition to the charges, Sovereign said it would record a $738 million fourth-quarter provision for loans and leases that are no longer performing as expected. That provision in the third quarter was $650 million.
For the full year, the company said, it increased its loss reserves by $252 million, from 0.88 percent of its outstanding loans to 1.28 percent.
Sovereign’s shares were $10.17, down 51 cents, or 4.8 percent, on the New York Stock Exchange. Their 52-week range is $9.44 to $26.70.
The company will report its fourth-quarter results on Jan. 23.
Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.
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