Sovereign Bancorp Inc. said its first-quarter profit plummeted on $128.7 million in charges related to the sale of home-equity loans and previously announced restructuring plans.
The Wyomissing, Pa., bank earned $48.1 million, or 9 cents a share, in the quarter, down from $141 million, or 36 cents a share, a year earlier.
Joseph P. Campanelli, who replaced longtime chief executive Jay Sidhu in October, said Sovereign was "on track" with its cost-cutting effort and had substantially completed its balance-sheet restructuring.
A $120 million pretax charge on the sale of $3.3 billion in home-equity loans that Sovereign had bought from other banks or brokers was the biggest hit in the quarter.
Sovereign decided last year to sell those loans because they accounted for half of the company's charge-offs in the first nine months of 2006, though they represented 11 percent of its average loan portfolio, the company said in its 10-K annual report.
In the fourth quarter, Sovereign had recorded a $296 million pretax charge to write those loans down to their fair market value based on their credit quality.
Sovereign, which last year was the fifth-largest savings institution in the Philadelphia region, said only 2 percent, or $320 million, of its residential mortgages were to borrowers with weak credit. The escalating default rate of such so-called subprime loans is reverberating throughout the financial world.
However, the company said the delinquency rate on its $2.6 billion portfolio of "Alt-A" mortgages - loans to people with good credit but without complete documentation of income - had fallen from 3.79 percent Dec. 31 to 3.42 percent March 31, but was still well above the 2.14 percent rate from a year earlier.
Such loans, which nationally have seen rising default rates, accounted for 18 percent of Sovereign's residential mortgages at the end of the first quarter, down from 25 percent at the end of the year.
Sovereign's shares gained 57 cents, or 2.4 percent, to close at $23.92 on the New York Stock Exchange, but gave almost all of that back in after-hours trading last night.