Credit crisis takes toll on Regions Financial

Speedier-than-planned write-offs of bad loans and problem real estate dropped Regions Financial Corp. profits in the third quarter by 80 percent from last year and below analyst estimates

Thur, 24 Oct 2008, 12:40 GMT

The Birmingham, Ala.-based firm earned $79.5 million, or 11 cents a share, in the three months ended Sept. 30. The average of analyst estimate was 28 cents a share.

"Credit quality and capital adequacy issues, along with a slowing economy, have created an unprecedented operating environment for financial companies," said Dowd Ritter, chairman, president and chief financial officer. "Regions is taking aggressive actions to counter its effects and is well-positioned to weather the storm."

To that end, the company, which owns Memphis-based Morgan Keegan & Co. and has 72 branches in the metro area, added $417 million to its reserve for future loan losses. That was $1 million more than the bad debts and property charged off during the quarter.

The company listed for sale or sold $430 million worth of bad loans and foreclosed property during the quarter, taking $186 million in losses on those deals.

"They're recognizing reality on the installment plan," said Peyton Green, analyst in Nashville for FTN Financial.

During a conference call Tuesday, Regions executives said they planned to sell assets through the federal government's troubled asset relief program and sell up to $3.5 billion in securities to the Fed under another part of the rescue program.

The proportion of the company's total capital, or financial cushion, to assets based on their risk was 11.7 percent as of Sept. 30. Regulators consider banks at 10 percent or more well-capitalized.

Green believes raising more capital through the government program, even with strong numbers, is smart.

"In the wake of the economy getting worse, not better, you can't have too much capital," he said.

Profits at Morgan Keegan, at $31 million, were $7.6 million less than in the second quarter. Revenues dropped because of a decline in income from bond and stock market activity.

Regions faces one other challenge, Green said.

"Deposit growth is where they've had more troubles," he said. "Their balances are down 10 percent year over year, and they've lost low-cost, high-quality deposits in money market and non-interest-bearing accounts."

Source:http://www.commercialappeal.com/new