Sovereign Bank worries persist among analysts
Boston Business Journal - by Tim McLaughlin
A banking analyst on Wednesday cut his earnings estimate for Sovereign Bancorp because of a potential loss on a syndicated loan to an energy trading company.
Sovereign, which is run from Boston and based outside of Philadelphia, has watched its stock slide 17 percent over the last week as investors worry about the problem syndicated loan and the bank’s more than $600 million in exposure to struggling mortgage giants Fannie Mae and Freddie Mac.
Matthew Schultheis, an analyst at Boenning & Scattergood Inc., cut his 2008 earnings estimate for Sovereign to 72 cents a share from 75 cents a share.
After the end of the second quarter, Sovereign warned that it has a $73 million syndicated loan to a company that filed for bankruptcy in mid-July. Schultheis said he expected Sovereign to recognize a loss of roughly $63 million to $66 million as a result of the loan to Tulsa-based energy trading firm SemGroup LP.
He has a “market perform” rating on the stock.
Meanwhile, analysts and investors are waiting to see if Fannie and Freddie are bailed out and whether the value of their preferred shares -- held by a number of banks around the country -- will hold up.
Sovereign recently raised nearly $2 billion in capital from the sale of equity and debt, but a write-down on the Fannie and Freddie preferred stock that it holds would erode some of that new capital cushion, analysts say.
Keefe Bruyette & Woods analysts said the Fannie and Freddie preferred stock is trading at less than 50 cents on the dollar. It cited Sovereign (NYSE: SOV) as one of the regional banks with the most exposure to Fannie and Freddie preferred stocks as a percentage of tangible capital.
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