Hibernia Corp. said Thursday that its first-quarter earnings would be 35% lower than expected, primarily because of losses on loans to bankrupt subprime lenders.

The New Orleans banking company said it would increase its loan-loss provision for the quarter by $18 million, to $30 million, mostly to cover losses related to its role in an $850 million syndicated loan to United Companies Financial Corp., which filed for bankruptcy this month.

The provision would also cover a charged-off $13 million loan made to an undisclosed company that experienced internal fraud. Analysts identified the company as Commercial Financial Services, a failed subprime credit card lender in Tulsa, Okla.

Hibernia, a $15.1 billion-asset company, said the additional loss provisions, coupled with an $8 million charge related to its merger with Marten Bancshares, would decrease its first-quarter earnings by 10 cents a share, to an estimated 18 cents.

The hit makes the bank the latest financial services company to suffer from exposure to the volatile sub prime lending sector, underlining a potentially dangerous trend in the industry, observers said.

The unsecured United loan is a "clear sign that banks are pushing their boundaries," said Robert Patten, an analyst at Lehman Brothers. "Everyone is under such pressure to increase net interest income."

In a conference call Thursday, Hibernia executives said they do not expect to take additional writedowns because of loans to United Companies or other subprime lenders.

They added that if more writedowns are necessary, they would be covered with money pulled from executive compensation packages and not shareholder profits.

"We feel that we are adequately reserved," said a spokeswoman for the company. "If something were to come up and we were to provide additional reserves, it would come from top executives' incentive accruals for 1998 and 1999."

Hibernia's chief executive officer, Stephen A. Hansel, said the bank has no other loans outstanding to subprime lenders. Commercial loans outstanding at the bank total $500 million, compared to a total portfolio of $10 billion.

"We are an old commercial bank, that's our heritage," Mr. Hansel said. "Part of that heritage creates some lumpiness in our results from time to time."

Mr. Hansel added that United Companies had an investment grade credit rating just one year ago. Hibernia extended credit to United in 1997.

The "bank's fundamentals are not deteriorating," said Christopher Mustacio, a Legg Mason Wood Walker analyst who cut his earnings estimates for Hibernia earlier this week.

"Where our concern comes in, going forward, is if you are in the height of the business cycle and you already have increasing problems in the banking industry, what will you do when that cycle goes down?"

United Companies named 22 unsecured creditors in its March 1 bankruptcy filing, including PNC Bank Kentucky Inc. and First Union Corp. Analysts expect the loan to affect these banks' bottom lines, though they won't be affected as adversely as Hibernia because of their larger size.

United's lenders were scheduled to meet Thursday to create a trustee advisory board to shepherd the company through bankruptcy, sources close to the company said.

The Federal Bankruptcy court has already approved a $225 million loan United Companies, of which $40 million will be used to pay off an emergency loan made by First Union in February.

The same day United filed for bankruptcy, bank regulators, including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., released bank guidance on subprime lending.

"If the risks associated with this activity are not properly controlled, the agencies consider subprime lending a high-risk activity that is unsafe and unsound," the report said.

Hibernia's $8 million charge related to the Martex acquisition, which closed March 8, includes $4.4 million in previously agreed upon compensation to go to Martex's top two executives.

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