Huntington Bancshares Taking $300M Charge

Updated from 2:18 p.m. EST

Huntington Bancshares(HBAN) sank 8.3% Friday, after becoming the latest casualty of the subprime mortgage meltdown.

The Columbus, Ohio-based bank plans to take an after-tax charge of up to $300 million, or 81 cents a share, and expects to post a net loss for the fourth quarter related to increases in allowance for loan losses tied to its exposure to subprime lender Franklin Credit Management(FCMC). Franklin has ceased making new loans and delayed filing its quarterly results until it can sort out the losses in its loan portfolio.

Huntington, which had $1.5 billion in loans out to Franklin Credit as of Sept. 30, inherited the commercial relationship from Sky Financial Group, which it acquired in July.

"We only recently learned of Franklin's actions to reassess the adequacy of their loan loss reserves," said Huntington Chairman and CEO Thomas Hoaglin. "Franklin's mortgages represent the underlying collateral for our loans to Franklin. As a result of this new information, we needed to reassess the collectability of the Franklin loans."

"The actions we have announced today, we believe, fully address the issues embedded in our Franklin exposure," Hoaglin said.

The news was met with much more caution on Friday at three large ratings agencies, which expressed concern about Huntington's ability to repay its debt and maintain its capital levels as a result of the charge.

Moody's placed the ratings of the company and its subsidiaries on review for downgrade, while Standard and Poor's revised its outlook on the company to negative from stable.

Fitch Ratings downgraded Huntington's issuer default rating to "A-" from "A" and cut the company's individual rating to "B/C" from "B."

Shares of Huntington closed down $1.33 to $14.75, while Franklin Credit shares tumbled $1.65 to 58 cents.

Huntington's charge marks the latest trickle-down effect from the mortgage crisis.

Banks and mortgage lenders of all sizes have taken hits from significantly beefing up their provisioning for consumer loan losses as mortgage delinquencies and defaults -- not just from borrowers with shaky credit histories -- have spiked. The rise in losses combined with falling home prices caused the market for mortgage-backed securities, a highly profitable business for many banks and Wall Street firms over the last few years, to come to a dead halt this summer.