November 14, 2000 First Union Stock Hit by Bad Loan Fears

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By REUTERS Filed at 6:40 p.m. ET

NEW YORK (Reuters) - First Union Corp. (FTU.N) stock fell 9 percent on Tuesday on fears about loan losses, after the No. 6 U.S. bank holding company said it might have to reclassify a large loan as a problem in the fourth quarter.

First Union stock slumped $2-5/8 to close at $27-7/16 on Tuesday on the New York Stock Exchange.

The Charlotte, N.C.-based bank, which held an upbeat analysts' meeting Tuesday, said in a regulatory filing that the condition of a single large borrower deteriorated in late October, although it could not estimate potential losses.

First Union Chief Executive Ken Thompson later told analysts the credit amounted to about 40 basis points of loans, equal to about $400 million, John Moore, an analyst at ILJ Wachovia said.

Analysts said they believe the loan is to consumer products maker Sunbeam Corp. (SOC.N). Neither the bank nor Sunbeam were immediately available to comment.

First Union was the lead agent on a March 1998 $1.7 billion loan to Sunbeam, whose best-known products include Mr. Coffee coffee-makers and First Alert smoke alarms, according to Loan Pricing Corp. The next two biggest participants in that loan were Morgan Stanley Dean Witter Co. (MWD.N) then Bank of America Corp. (BAC.N), Loan Pricing said.

Sunbeam in August reported a wider-than-expected second quarter loss and said it plans to divest a unit. It said its results were hurt by lower sales of Y2K-related products, increased restatement-related litigation reserves and charges for facility closures. Then, in September, it pulled a bond exchange offer because the bondholders were unwilling to accept the terms.

``There are rumors of a possible write-down of a large loan loss in its syndicated lending portfolio,'' Stephen Biggar, an analyst at SP Equity Group, said of First Union.

In third quarter, First Union put aside $202 million for loan losses, compared with $175 million in the year-ago quarter. Nonperforming assets at Sept. 30 totaled $951 million compared with $1.0 billion at that point a year ago.

Problem loans are on the rise at U.S. banks, after a string of U.S. interest rate increases that has caused the domestic economy to slow and squeezed some large corporate borrowers.

The Bank of New York Co. Inc. (BK.N), the parent of one of the country's oldest commercial banks, also said in a regulatory filing on Tuesday it expects its problem loans to rise in the fourth quarter, after a company it lent money to filed for bankruptcy in October.

The New York-based bank said it had a $59 million exposure to a customer who filed for bankruptcy to protect against asbestos claims. The bank declined to name the borrower.

http://www.nytimes.com/reuters/business/business-financial-fi.html

-- Carl Jenkins (somewherepress@aol.com), November 15, 2000