Marshall & Illsely Shares Rise After Loss

Marshall & Ilsley(MI - Cramer's Take - Stockpickr) shares were on the rise Wednesday, after reporting a narrower second-quarter loss than analysts' recently lowered expectations.

The Milwaukee-based bank posted a net loss of $394 million, or $1.52 per share, for the quarter. The loss per share was four cents less than analysts' consensus estimate, which was reduced after the $64 billion bank holding company on July 3 predicted a loss of as much as $1.60 per share.

With the slight positive surprise, shares were up 6% to $12.39 in early morning trading. Shares returned a negative 67% over the past year, through Tuesday's close.

Following the theme for so many large regional banks, the main factor in the quarterly loss was a provision for loan losses of $886 million. This followed net loan charge-offs of $401 million, with construction and development loans comprising the vast majority of the charge-offs.

After the charge-offs, nonperforming assets comprised 1.94% of total assets as of June 30, increasing from 1.52% last quarter and 0.70% in June 2007.

The annualized ratio of net charge-offs to average loans was a very high 3.23%. This paints a rather ugly scenario.

M&I's loan loss reserves covered 99% of nonperforming loans and 2.07% of total loans as of June 30. If the company continues charging off loans at an annual pace of 3.23%, it will quickly burn through its loan loss reserves, and several more quarters of elevated provisions for loan loss reserves will be needed. This will pressure the company's earnings for several more quarters.