BancWest Corp., like certain other banking companies, is digging in for what is expected to be a lengthy period of losses tied to exposure to home builders.
BNP Paribas SA, the French company that bought the $71.7 billion-asset BancWest in 2001, recorded a $67 million provision for loan losses in the third quarter to buffer against expected losses to such borrowers.
Though only $1.9 billion, or 4%, of the San Francisco unit's loan portfolio and 16% of its $12 billion commercial real estate portfolio involves home builders, Philippe Bordenave, BNP's chief financial officer, said it is monitoring the sector closely.
During an earnings conference call Thursday, Mr. Bordenave said BNP set aside the provision after conducting stress tests on the unit's home builder loan book. He called the exposure an "indirect consequence of the real estate crisis" in the United States.
A quarter of BancWest's loans are for commercial real estate, he said. "We don't have any specific significant risk coming up now, but we feel that, given the situation that the home builders will face over the next few months, we will have some losses and some bankruptcies there."
J. Michael Shepherd, a vice chairman at BancWest and the president and chief operating officer at its Bank of the West, said in an interview Thursday that BancWest is trying to be proactive, though the outlook remains uncertain.
"No one has great visibility on the extent" of the real estate problems, he said. "From where we are, it looks like it could last several quarters. … The good news is that we certainly aren't seeing the contagion in delinquency numbers yet."
The higher provision, coupled with continued compression in the net interest margin, took a toll on BancWest's bottom line. Pretax profits fell 15.7% from the second quarter and 20.7% from a year earlier, to $245.5 million.
However, revenue rose 7.6% from the second quarter and 6.3% from a year earlier, to $715 million. BancWest's contribution to BNP's overall revenue fell to 6.5%, from 7.8% a year earlier, as the dollar continued to weaken against the euro.
Another reason for BancWest's smaller contribution to BNP's revenue is the unit's avoidance of acquisitions for nearly two years while its parent continued making deals.
BancWest is now in a position to make acquisitions, Mr. Shepherd said. "Acquisitions have been a real strength of ours. We have successfully integrated our past acquisitions and are now in a position to move forward with our U.S. growth strategy."
However, he also said the unpredictable state of the U.S. housing market gives BancWest a reason to hesitate. "We remain impressed by the caliber of our acquisition team, but current volatility makes it harder to have the same level of confidence in due diligence results."
BNP's third-quarter earnings fell 6.2% from the second quarter but rose 36.1% from a year earlier, to $2.89 billion. In addition to higher loan-loss provisions, it recorded losses tied to writedowns in its corporate and investment bank, though Mr. Bordenave said during Thursday's call that it had only $28.5 million of losses tied to the U.S. subprime housing market.
BancWest also has "negligible" subprime exposure, he said; less than 1% of its mortgages and less than 2% of its home equity loans are subprime. The rate of nonperforming assets and foreclosed properties rose just 4 basis points from the second quarter and a year earlier, to 0.58% of total loans.
Also, BancWest has $275 million of subprime mortgage securities, or just 2% of its investment portfolio.
The unit had mixed results with balance-sheet growth. Its loan portfolio grew 1.6% from the second quarter and 6% from a year earlier, to $47.5 billion. Deposit volume rose 0.4% from the second quarter but fell 0.6% from a year earlier, to $43.2 billion. The margin shrank 6 basis points from the second quarter and 11 basis points from a year earlier, to 3.05%.
Mr. Shepherd said that even though deposit pricing remains competitive, the margin should improve over the next few quarters. "There will be some additional pricing for risk" on the asset side, "and some return to a more normal yield curve should assist in that."
