Losses to Drive M&As

Block reported a loss of $502 million for the fiscal quarter ended Oct. 31, according to a FORM 10-Q filed with the Securities and Exchange Commission today. Restructuring charges for the termination of Option One Mortgage Corp. operations was responsible for $35 million of Block’s loss, while the company wrote down $123 million in the value of Option One’s servicing business. Another $40 million restructuring charge is anticipated in the current quarter.

PNC expects a writedown on its $1.5 billion of commercial mortgage loans held for sale. At Nov. 30, revenue from these items was $95 million lower than in the third quarter and could decrease further, according to a filing Wednesday with the Securities and Exchange Commission.

Among other charges, PNC said the results will also include a $45 million increase from the third quarter to the provision for credit losses primarily related to residential real estate development exposures in the Maryland and Northern Virginia areas.

Meanwhile, Wachovia anticipates that writedowns tied to securities backed by residential subprime mortgages and in collateralized debt obligations in October and November will equal the $1.34 billion pretax loss reported for the entire third quarter. The estimate has grown from $1.1 billion in October and could be “materially greater or less” for the remaining month of the year, the company said in an SEC filing Wednesday.

Additionally, the Charlotte, N.C.-based lender said it may double its provision for loan losses in the fourth quarter by setting aside $1 billion in excess of charge-offs, instead of its previous estimate of $0.5 billion to $0.6 billion.

BoA Chairman and Chief Executive Ken Lewis expects the company’s writedowns on CDOs to be larger than the $3 billion it had previously announced for this quarter.

Provision expenses for the quarter at anticipated at about $3.3 billion, reflecting increased reserves of about $1.3 billion. About one-third of the increase is due to growth in the consumer lending portfolio, and two-thirds from deterioration principally in consumer real estate and small business, Lewis said Wednesday at a Goldman Sachs Financial Services Conference.

“While we do not have a practice of forecasting quarterly earnings, I think you certainly can assume results will be disappointing,” Lewis said. “The final write-downs of CDOs are unknowable, but at the present time we do expect to be profitable in the fourth quarter.”

Despite the changing economic environment, Stone & Youngberg announced that West Coast community banks have maintained stable earnings. Additionally, the majority have non-accrual loans under control or do not have any, and most do not have subprime mortgage exposure.

These results from the Third Quarter 2007 Bank Analysis and Summary Report by Stones’ Community Bank Group considered the responses of 73 West Coast community banks, including California United Bank, CommerceWest Bank, MetroPacific Bank, United Security Bancorp and Wilshire Bancorp.

Furthermore, PricewaterhouseCoopers said its outlook for 2008 is that the financial services sector will continue to present opportunities for mergers and acquisitions. While subprime mortgage and CDO exposures continue to cause a negative wave through the industry, opportunities will come as financial companies address their liquidity, rating, regulatory and shareholder concerns.

“Opportunistic market leaders and investors will take advantage of the ripple to consolidate under-performing entities in consumer finance and regional banking,” PricewaterhouseCoopers said in the announcement. “Watch for momentum in this area to grow as 2008 progresses.”

Commenting on its previous outlook for 2007, PricewaterhouseCoopers indicated its prediction that merger and acquisition activity would set a record if the “Goldlilocks” economy ideal for such activity continued was accurate, considering that economy was in fact disrupted by the credit crunch brought on by the subprime fall-out and will result in activity being near record level. Its forecast that the financial services would be one of the five most active sectors was correct as well.

WaMu will issue 3 million shares of 7.75% Series R Non-Cumulative Perpetual Convertible Preferred Stock for $3.0 billion, according to an SEC filing. The approximately $2.9 billion in net proceeds will be used as additional capital and general corporate purposes.

Freddie intends to boost capital by $4 billion, as it announced plans to sell $3 billion in new five-year reference notes that mature Dec. 21, 2012, and $1 billion in a reopening of its 4.125 percent two-year reference notes security due Nov. 30, 2009. Both issues will be priced on Friday and settle on Monday.

The five-year issue will be offered via a syndicate of dealers headed by Merrill Lynch, Morgan Stanley and UBS Investment Bank, and the two-year notes will be sold via an Internet-based auction.

Year-to-date, Freddie has reportedly issued $51 billion of reference notes securities and has approximately $246 billion in reference notes and bonds securities outstanding.

Fairway Independent Mortgage Corp. announced the launch of a new reverse mortgage division. The company, with over 100 branches, noted it established the program to provide standardized delivery of reverse mortgages.