Utility Worries Loom Over UnionBanCal

UnionBanCal (UB Quote) beat sharply reduced fourth-quarter earnings estimates late yesterday, but analysts say the looming California utility crisis threatens to deal the bank another setback just as it takes its credit problems in hand.

The San Francisco-based bank posted earnings of 5 cents a share, above the First Call/Thomson Financial consensus of 1 cent, but dramatically lower than the 83 cents it earned last year. Net income in the latest quarter was $8.4 million, compared with $136.9 million in the same period last year. UnionBanCal shares slipped 19 cents to $28.06 Tuesday.

The big jolt was a $250 million provision to cover the cost of bad loans, representing a whopping 733.3% increase from 1999. When banks put money into what is known as a loan-loss reserve, the cost is deducted from operating profits because losses from lending activities are considered part of the cost of doing business. Like a number of other banks, UnionBanCal is now paying the price for leaping into the syndicated lending (loans shared by three or more institutions) business a few years ago. ...