(November 16) – “Bank of America and First Union are warning about potential write-offs in the fourth quarter related to a single borrower, raising anxiety among investors about possible credit problems at commercial banks,” writes Riva Atlas in today’s New York Times.

“In their third-quarter financial statements, released earlier this week, both companies made references to a single loan to a troubled company. While neither bank would identify the borrower, analysts and investors think the banks were referring to the Sunbeam Corporation, the household and consumer products company that is struggling to recover from accounting irregularities discovered two years ago.”

“In March 1998, Sunbeam arranged for a $1.7 billion loan from First Union, Bank of America and Morgan Stanley Dean Witter. Typically, the banks would have syndicated, or sold off, pieces of that loan to other lenders. But after Sunbeam’s accounting irregularities were disclosed, no other banks were interested in the loan.”

“Each of the three banks are thought to own about a third of the Sunbeam loan. News of the losses, and concern about other lurking credit problems, caused the shares of First Union and Bank of America to fall over the last two days. First Union fell 69 cents yesterday, to $26.75, after declining $2.63 the day before, as analysts took a close look at the company’s quarterly report. Bank of America has fallen more than $5 over the last two days, declining $3.88 yesterday, to $42. In contrast, after faltering yesterday morning, Morgan Stanley’s shares rebounded and closed up $2, to $70.”

“An investment bank like Morgan Stanley is likely to have marked down the Sunbeam loan over time, noted Guy Moszkowski, an analyst at Salomon Smith Barney. Commercial banks like First Union or Bank of America tend to carry loans on their books at par, or 100 cents on the dollar, as long as they still pay interest.”

“Investors in bank stocks worry that the Sunbeam loan is just the beginning. Bank stocks could fall another 25 percent based on problem loans, Susan Roth, an analyst at Credit Suisse First Boston, estimated in a research report released yesterday. ‘We thought we had been conservative in our expectations for bank earnings,’ Ms. Roth wrote. ‘Taking into consideration the guidance from both First Union and Bank of America, that no longer looks to be the case.’ “