Banking companies had a tough time unloading their troubled loans in the first quarter as they waited for the government's pending bad-asset plan to jog the market for residential and construction loans.

Tepid loan sales by KeyCorp, Synovus Financial Corp., Marshall & Ilsley Corp. and others indicate that banking companies are still reluctant to mark down their loans to clearing prices, analysts said.

"Most of the companies that I follow have been disappointed with the volume of properties that they have moved over the last three to six months," said Anthony Davis, an analyst at Stifel, Nicolaus & Co. "Buyer interest is just not what they expected."

To be sure, sales of home loans, in particular, tend to wane in the first quarter, Davis said. But banking companies appear resistant to marking down bad real estate loans over concerns that these assets have not yet hit bottom. The secondary loan market also appears to be stalled as banks and investors wait for the Treasury Department's Public-Private Investment Program to kick in.

"What we have heard across the board is that banks have not sold as much as they [have] wanted to, and they blame the PPIP," said Chris Marinac, an analyst at FIG Partners LLC.

A handful of companies saw their loan sales slow down or fall short of expectations in the quarter.

Marshall & Ilsley, for instance, sold $128 million of nonperforming construction and development loans in the period, down from $164 million in the fourth quarter. A spokesman for the Milwaukee company did not return a call for comment.

KeyCorp, meanwhile, whittled its portfolio of residential and construction loans marked for sale by just $18 million, to $70 million, after shrinking the portfolio by $45 million, to $88 million, during the last three months of 2008. The Cleveland company got just $1 million in proceeds from loan sales in the quarter, compared with proceeds of $10 million in the previous period.

"I think we may have sold one transaction" in the first quarter, said Charles Hyle, Key's chief risk officer. "We don't see a lot of thawing" in the market for distressed loans, "particularly in the residential space."

Key said it has marked down its $70 million portfolio to an average of 40 cents on the dollar.

Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, said Key's tepid sales could mean that it has not marked down the loans far enough.

"We have seen bad assets go for a nickel on the dollar to literally a dollar on the dollar," Cassidy said. "Is 40 cents the right price? If it is still sitting on your balance sheet and there are not buyers … , it's not market price."

To be fair, Cassidy said KeyCorp had made good progress on selling down its troubled loans throughout 2008.

The slowdown could indicate that it has sold the best performing credits in the portfolio and is now stuck with the worst performers.

A Key spokesman said executives from his company were unavailable to comment.

Synovus Financial, meanwhile, had little success in unloading about $500 million of troubled real estate loans in Florida and Atlanta. Synovus created a special subsidiary to sell those assets late last year.

Richard Anthony, the Columbus, Ga., company's chief executive, said in a conference call last week that it had not seen "much activity" on the sales front, though the portfolio had been written down to $347 million after updated appraisals.

Synovus managed to sell $107 million of other distressed loans, though that volume was below the $125 million it was hoping to sell in the quarter.

The Georgia company managed to average just more than 60 cents on the dollar on those loan sales. Anthony said in the call that foreclosed properties and auction sales fetched 60 cents to 65 cents, note sales fetched about 50 cents, and short-sale offers closed at around 80 cents.

Synovus expects to sell more than $125 million of troubled loans in this quarter.

It did not return a call for comment.

Though these companies struggled to unload their bad loans, other companies made better progress.

Fifth Third Bancorp and Regions Financial Corp. each booked modest gains on batch sales of bad loans at 35 cents and 50 cents on the dollar, respectively.

Executives for those companies said during conference calls last week that the first quarter gains — $13 million for Fifth Third and $4 million at Regions — indicated they had made accurate markdowns.

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