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  • normlasky normlasky May 18, 2011 9:29 AM Flag

    Start the beatings - Q2 Forecast

    "Overall, I forecast $.48 per share after tax income, compared to $.32 in Q1."

    Credit Suisse 5/5/11 2nd qtr. projection is also $.48. They have cut their provision for loan losses to about $1.2 billion, down almost 50% from their prior projection.

    In the 1st qtr. bbt incurred a $100 million write-down of their oreos via the valuation allowance. I see no adjustment in your forecast for this item so I assume you see a ditto in q2.

    I've lost track of the mark on the oreos. I think it's 50% plus. There have been so many quarterly valuation allowance charge-offs in the $100 million range, it's quite confusing.

    The valuation allowance charge pertaining to the mark is the difference between the actual and future disposition values of oreos and their book value. If bbt charge-offs estimates vs. market realization were perfect, the mark via the valuation allowance would be zero. The fact that the cumulative mark via the valuation allowance for over the last 2 years is around $800 million shows that the actual charge-offs reported by bbt are far less than values realized.

    The $100 million hit eventually will go away but I've been singing this song for since 2010. It's worth about a dime in quarterly eps.

    I see that you dropped the provision down to $290 million. At best this area is a shot in the dark. Charge-offs should continue to drop to say $350 million range in q2. The 10-q shows that the provision for loan losses in the 1st qtr. for c&i loans was a negative $12 million while adc loans dropped to $19 million suggesting a large reductions in chargeoffs in q2.

    With an ALL of $2497 million plus $568 million charge-offs already embedded in the principal of loans held for investment, the amount reserved in total equates to about 9 quarters of charge-offs ($3065 million divided by $350 million). Imo, there is a very high liklihood that quarterly charge-offs by year end will drop to around 100 bsp (annualized) or about $250 million per quarter. Something kind to give with the total reserve of $3065 million because it's going to be close to 3 years of charge-offs by year end without a significant release.

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