Let’s make it official: the scratch-and-dent business is dead — for now. Between collossal losses at both C-BASS and Franklin Credit, it’s become clear turning non-performing loans into re-performing loans isn’t nearly the cakewalk it was a few years back. A warning from Huntington Bancshares on Thursday morning shows just how far the pain has reached, with the Columbus, Ohio-based bank holding company saying that it expected to report a 2007 fourth quarter loss of $239 million, or $0.65 per common share. The lion’s share of the expected loss came from none other than Frankin Credit, who last week said it had entered into a debt restructuring agreement. Not surprisingly, that restructuring agreement will hit Huntington’s books in a big way, with the company saying it would take a pre-tax charge of $424 million related to its exposure to Franklin Credit Management Corporation. $406 million of that amount represents loan loss provisions, meaning that Huntington isn’t expecting much in the way of recouping its prior funding here. Commercial loans a problem, too Getting beyond the shadow of Franklin Credit, it’s worth noting that Huntington is in line with the newest mortgage-related earnings trend: commercial real estate losses. The bank holding company said it had hiked loan loss reserves outside of Franklin Credit by $64 million, primarliy to cover what it called a “continued weakness in the commercial real estate markets in eastern Michigan and northern Ohio.” Huntington also said it is seeing some net interest margin compression, registering 3.26 percent in net interest margin for the fourth quarter, down from 3.52 percent in the 2007 third quarter. Some of that drop was due to competition for deposits, the company said. For more information, visit http://www.huntington.com. Disclosure: When this post was published, the author held no positions in HBAN.

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