Marshall & Ilsley Sees Higher Loan Losses

MILWAUKEE (TheStreet) -- Marshall & Ilsley (MI Quote) shares slumped after the company became the first regional bank to warn investors that it would record a larger than expected third-quarter loss.

Shares fell 3% to close Tuesday at $7.70 after M&I said it plans to record a loan loss provision of between $575 million and $585 million. That range is roughly $185 million more than previously forecast, and the company attributed the discrepancy to a "significant" deterioration in loans given to several troubled Midwestern banks.

Nearly 19 million shares of M&I changed hands on Tuesday, more than double the stock's three-month daily trading average of 8.7 million shares. Even with the pullback, the stock is still up nearly 60% since the beginning of July.

Including the higher provision, M&I now expects to record a quarterly loss between 68 cents and 70 cents a share. The current consensus estimate of analysts polled by Thomson Reuters is for a loss of 39 cents a share in the three-month period ended in September.

M&I did not name which companies were troubled borrowers, simply saying that four bank holding companies "were working on a variety of capital raising and restructuring initiatives," M&I's president and CEO Mark Furlong said during a conference call. The initiatives "in our opinion, did not sufficiently improve their position such that their outlook would have a positive outcome."

The $185 million provision includes $25 million of additional reserves; the rest was for loans that were charged off. At the end of the quarter, approximately 75% of the charged-off loans were performing, M&I said. The company expects net charge-offs to total as much as $540 million for the quarter.