Analysts have estimated Wachovia’s net commercial mortgage-backed securities exposure to be about $9 billion, and say the bank could face a related fourth-quarter writedown as large as $1.5 billion.
Howard Mason, an analyst at Sanford C. Bernstein & Co. who projected the hefty write-down said, “CMBS-related write-downs may wipe out earnings.”
“The key risk in our view is that sustained write-downs in 2008 on CMBS-related exposure creates a strain on regulatory capital levels,” Mason added.
Credit Suisse analysts believe CMBS-related losses at the nation’s fourth largest U.S. bank could 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.
In October, Wachovia struggled to find buyers for CMBS related to Lightstone Group’s purchase of the Extended Stay Hotels group from Blackstone Group, apparently finding investors for only a modest piece of the debt.
According to Commercial Mortgage Alert, Wachovia increased the amount of loans it placed in CMBS from January to September to $22.94 billion from $14.36 billion a year earlier.
The Charlotte-based bank and mortgage lender is also currently suing developers of the planned 1,000-acre Bon Secour Village project on the Alabama coast for $21.1 million, claiming it has not received a payment since June.
Shares of Wachovia fell 60 cents, or 1.58%, to $37.43 in late trading on Wall Street, just a buck above their 52-week low.
Wachovia (WB) is scheduled to release its fourth-quarter earnings results on January 22.