Credit Crunch ExpandingWB has a $9B portfolio of commercial MBS or CMBS. They are likly looking at $1.5B write-off. This is bad for BSC in two ways. First, many banks continue to underestimate writedowns so there will be more to come in 2008. Second, this is a high profile write-down of commercial mortgages, not just residential, particularly subprime.
I am not aware that CM has much commercial mortgages. I wouldn't think its significant. But more importantly, this problem will only exacerbate the negative sentiment in the sector.
From CNBC:
As more banks report write-downs tied to the global credit crunch, analysts say Wachovia may have losses lurking in an area that has garnered less investor attention.
The fourth-largest U.S. bank Wachovia has in recent years aggressively tried to add market share by underwriting commercial mortgage-backed securities.
Demand for such securities has slid amid credit concerns, leaving dealers struggling to unload loans whose quality might be perceived as less sound than investors now demand.
Analysts have estimated Wachovia's net CMBS exposure at about $9 billion. They say the Charlotte, North Carolina-based bank could face a related fourth-quarter write-down as large as $1.5 billion.
"CMBS-related write-downs may wipe out earnings" in the quarter, wrote Howard Mason, an analyst at Sanford C. Bernstein, on Dec. 6. He projects a $1.5 billion write-down for the securities, on top of $488 million in the third quarter.
Meanwhile, Credit Suisse analysts led by Todd Hagerman wrote on Dec. 20 that CMBS losses at Wachovia might reach $1 billion to $1.2 billion.
"Marks will increase further given the severe dislocations in the fixed income capital markets during the quarter, including materially wider CMBS credit spreads," the analysts wrote.
Wachovia spokeswoman Christy Phillips-Brown declined to comment. The bank is scheduled to report year-end results on Jan. 22. Mason rates Wachovia "outperform," while Hagerman rates it "underperform."
Tough Environment
In the third quarter, Wachovia suffered $1.3 billion of write-downs from credit market turmoil, causing overall profit to decline 10 percent. Analysts had expected profit to rise.
Then on Nov. 9, the bank said fourth-quarter results would likely also be hurt by its residential mortgage exposure. It reported a potential $1.1 billion pre-tax loss tied to lower quality subprime mortgages, and said it might boost loan losses by $600 million largely because of falling home prices.