NEW YORK (Reuters) - Sovereign Bancorp Inc <SOV.N>, the second-largest U.S. savings and loan, said on Monday it expects to take $1.58 billion in fourth-quarter charges, hurt by worsening credit quality and a tough mortgage environment.
The Philadelphia-based thrift expects to write down $1.4 billion of goodwill. This includes $600 million related to consumer lending, which has been hurt by weaker credit and a decision to stop making some auto loans.
It also includes $800 million related to operations in the New York area. Sovereign in June 2006 paid $3.6 billion for Brooklyn, New York's Independence Community Bank Corp, and said revenue and deposit growth have been lower than expected.
Results also reflect a $180 million write-down related to preferred stock investments in mortgage financiers Fannie Mae <FNM.N> and Freddie Mac <FRE.N>.
Sovereign also said it will set aside $738 million for bad loans and leases, up from $650 million in the prior quarter. It also plans $27 million in charges related to financings to two mortgage companies that have defaulted.
Chief Executive Joseph Campanelli in a statement said Sovereign remains a "fundamentally sound financial institution," despite market and credit pressures. The company operates about 750 banking offices in eight Northeastern U.S. states, and ended September with $86.6 billion in assets.
Jay Sidhu, Campanelli's predecessor, received wide criticism for the Independence acquisition, which occurred at the same time Sovereign sold a $2.4 billion stake to Banco Santander Central Hispano <SAN.MC> <SBP.N>. The Spanish bank in 2006 eventually took a 24.99 percent stake in Sovereign.
Sovereign plans to release quarterly results on January 23.
Shares of Sovereign closed Friday at $10.68 on the New York Stock Exchange. Through Friday, the shares had fallen 58 percent in the last year, compared with a 31 percent drop in the KBW Regional Bank Index <.KRX>.
(Reporting by Jonathan Stempel; Editing by Derek Caney and Dave Zimmerman)
