Gediminas Jasionis

Huntington Bancshares Incorporated (NASDAQ: HBAN) taking initiative

by Gediminas Jasionis April 3, 2009
Huntington_logo.jpgHuntington Bancshares Incorporated (NASDAQ: HBAN) announced the company has restructured its relationship with Franklin Credit Management Corporation. Following the transaction, Huntington will be able to take control of the mortgage loans and OREO assets, thus adding 29 basis points to their common equity ratio.

The company also expects the transaction will aid them in a development of their servicing business. Loans worth $615 million were eliminated, solving the problem Huntington was having with Franklin. HBAN was bound by this relationship when it acquired Sky Financial Group in 2007. The acquisition left Huntington with $1.5 billion worth of loans that were considered problematic. The current restructuring eliminated the $615 million that was left after acquisition. As a result Huntington will not only enjoy balance sheet improvement but will also see a onetime $160 million after-tax benefit.

Huntington's share price rose since the announcement, adding a total of 14% till Friday. However the market was rising as well, so this wasn't really an effect of the news announcement. The important thing about this restructuring is Huntington's future state of its fundamentals. As the company already stated, immediate 29 basis point improvement in their equity ratio will be seen. A further effect would be the elimination of loss risks associated with those loans since Huntington now has control over them.

"I applaud Huntington for doing something without the direct intervention of government for this circumstance, and anything to lessen the impact of these toxic assets is a good thing," said Matt McCormick, an analyst with Cincinnati investment adviser Bahl & Gaynor.


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