UPDATE 4-BB&T to sell $1 billion in bad loans, shares fall

Wed Sep 15, 2010 12:14am BST

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* BB&T to move $1 billion in loans to held-for-sale in Q3

* Loans would be sold to investors in next 2 to 3 quarters

* CEO says bank's earnings can weather related writedowns

* Shares close down 3.9 pct (Adds details, analyst comments, updates with closing stock price)

By Joe Rauch

CHARLOTTE, N.C., Sept 14 (Reuters) - BB&T Corp (BBT.N) Chief Executive Kelly King said on Tuesday the bank would sell more than $1 billion in loans -- higher than expected, which raised concern about bad assets and sent its shares nearly 4 percent lower.

"It was a surprise announcement that pretty clearly indicates the next few quarters are going to be lumpy for the bank's credit," said Michael Nix, principal at Greenwood Capital Associates.

King, speaking at the Barclays Global Financial Services Conference in New York, said the bank will reclassify some $1 billion in nonperforming assets as loans held-for-sale, and the loans will be sold to interested parties over the next two to three quarters.

Until second quarter 2010, BB&T had largely avoided the massive loan sales and writedowns that plagued other major U.S. regional banks since the housing crisis took hold in 2007 and 2008.

BB&T was one of three major U.S. regional banks that remained profitable throughout the entire financial crisis and recession, and one of the first to repay its 2008 U.S. government bailout last summer.

But as part of the company's second quarter 2010 earnings announcement, BB&T disclosed a large spike in bad loans it would be looking to get off its books.

In the second quarter of 2010, BB&T sold $682 million in problem assets -- half of those retail mortgages -- to investors. The sale was six times higher than the $140 million the bank sold in 2010's first quarter and the $102 million it sold a year prior.

The bank said at the time it would continue to sell distressed assets more aggressively, but King's announcement was a surprise given the amount of loans that would be reclassified as held-for-sale in third quarter.

"There's always been a sense that BB&T hasn't necessarily revealed all of their problems, even as their competitors were recognizing losses and sell loans," said Nix. "The bank clearly took a stance they wanted to wait on asset sales."

Analysts said BB&T's late arrival to asset sales is driven in part by its loan portfolio. The bank's loans were concentrated in areas such as North Carolina and Virginia, where borrowers have been less affected by the foreclosure crisis than in Florida or Georgia.

The bank attempted to sell the $1 billion pool of loans that will be moved to held-for-sale in large blocks earlier this summer, but received bids below what it wanted, analysts said.

Instead, BB&T will now sell the loans in small chunks to a wider investor pool.

But the bank must quickly dispose of assets to catch up with rivals that have already reported large loan writeoffs, or risk a worsening loan portfolio as competitors begin to improve after years of pain, analysts said.

"You don't want to go into 2011 in the back of the pack on credit," said Marty Mosby, a bank analyst with Guggenheim Securities LLC.

During the Barclay's conference presentation, King was adamant the $1 billion loan sale is not indicative of deeper credit issues at the bank and BB&T is instead trying to maximize the value of its distressed loans.

"We are not in a rush to cut and dispose of assets at 10 cents on the dollar," King said. "But we are becoming more aggressive in selling our problem assets."

King also said investors should not expect the bank to report higher cumulative losses. Instead, he said, the bank is "pushing existing losses forward."

The third-quarter writedowns would be absorbed by the bank's earnings and the company's dividend would be unaffected, he added. BB&T pays 15 cents per share, one of the highest in the industry.

The shares of the Winston-Salem, North Carolina-based bank closed 94 cents lower, or 3.9 percent, at $23.43 on the New York Stock Exchange. They posted the largest decline in the KBW Bank Index .BKX, which fell 1.35 percent on Tuesday. (Reporting by Joe Rauch; editing by Maureen Bavdek, Gary Hill and Andre Grenon)

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