Shawmut National Corp. has a preliminary agreement to sell about $80 million in bad residential real estate loans and foreclosed properties to GE Capital Corp. and an unidentified Wall Street firm, sources said Friday.
Hartford, Conn.-based Shawmut is also considering a large public auction to unload some of its bad commercial real estate assets, the sources said.
Sale of the residential assets, slated for completion in about two weeks, would reduce Shawmut's nonperforming assets by 6.6%, to $1.4 billion.
Partner in the Shadows
The terms of the sale could not be learned, but it is not expected to have a material effect on earnings. The assets - about 500 single family mortgages and properties - are carried on Shawmut's books at about 60 cents on the dollar.
The identity of the Wall Street buyer could not be learned. A spokesman for Shawmut, which has $22.6 billion in assets, declined to comment. Officials at GE Capital, a unit of General Electric Co., also declined to comment.
Shawmut is the fourth bank in two weeks to surface with to sell bad.assets or with plans to sell them.
On Sept. 14 First Chicago Corp. said it planned to sell $2.1 billion of distressed commercial real estate assets; two days later. Fleet Financial said it planned to sell $500 million in bad commercial or real estate assets.
On Friday, American Banker reported that NationsBank was close to a deal to sell $650 million in bad commercial real estate assets.
But Shawmut is the first bank to announce a massive sale of bad residential real estate loans. And unlike the other banks, Shawmut's planned sales will make only a minor dent in the company's level of nonperforming assets.
At most the sale will reduce the company's bad assets to 10% of loans and foreclosed real estate, from 10.7% at the end of the second quarter. That's still a relatively high level.
If Shawmut proceeds with the auction, it would involve foreclosed commercial properties and possibly commercial loans.
Their value could not be determined, but one source with knowledge of Shawmut's portfolio speculated that it could involve 200 foreclosed properties, making it one of the largest property auctions in the region.
Analysts are concerned that many banks selling bad assets at once could further depress real estate prices and as a result. cause more problems for banks than they solve.
However, they said this concern applied more to the commercial real estate market than to the residential real estate market, which has proven to be more resilient.
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