Security Pacific Corp. said yesterday it will add a $500 million provision to its reserve for credit losses during the second quarter to cover potential losses on loans made to "developing world" nations.
Meanwhile, L. William Seidman, chairman of the Federal Deposit Insurance Corp., said yesterday that he expects more and more U.S. banks will find it "irresistible" to boost their reserves for possible loan losses in the wake of such actions by New York banking giants Citicorp and Chase Manhattan.
"The market system will get the other banks, most of the other banks, to follow suit," Seidman told a conference sponsored by the American Bankers Association. "Most banks are going to find it irresistible."
Security Pacific's action is expected to result in a loss of about $175 million during the quarter, compared with net of $93.5 million during the same period last year. Annual income is expected to be cut to $150 million, compared with $385.9 million last year.
Security Pacific's loan loss reserve now totals about $1.3 billion or 2.8 percent of total loans outstanding.
"I wouldn't say it's expected, and yet I wouldn't consider it a great shock," said Donald Crowley, a banking analyst with Keefe, Bruyette & Woods.
Crowley said Security Pacific, with a lighter load of Latin American debt than other major U.S. banks, is "in a better position to take this action."
Citicorp, the nation's largest bank, last month set aside $3 billion to cover potential loan losses in Brazil, an action it said will lead to a $2.5 billion loss in the second quarter of this year. A week later, Chase Manhattan added $1.6 billion to its reserves, saying it will result in a $1.4 billion second-quarter loss.
"It's going to be harder for other banks to continue to penalize their earnings on a quarterly basis, when others have put this behind them," Seidman said.