HEI asked to clarify mortgage risk

Its American Savings Bank unit carries mortgages that were issued by Countrywide

Hawaiian Electric Industries Inc. said yesterday it was asked late last year by federal regulators to add language in its financial filings concerning risk factors of its mortgage-related securities on the earnings of its banking subsidiary.

The Honolulu-based parent of American Savings Bank and utility Hawaiian Electric Co. clarified language in its latest annual filing released Feb. 28 to reflect the risks of current mortgage market conditions, it said in a letter to the Securities and Exchange Commission released yesterday.

"It looked pretty tame," said Great Falls, Mont.-based D.A. Davidson & Co. analyst James Bellessa. "From those requests it didn't seem like it was anything way out of place. I scanned the annual report and I didn't see any narrative there that caused any concern either."

A slump in the housing market in the past two years has many financial institutions tightening their lending standards as they face multibillion-dollar losses on mortgage defaults.

American Savings does not have material exposure to securities backed by subprime mortgages, HEI said in its latest annual filing. But it said in its letter to the SEC that it will include in subsequent filings the details of economic or industry-wide factors that could impact earnings.

Mortgage-related securities represented 33.7 percent of the bank's total assets as of Dec. 31, while real estate loans made up 54.6 percent. The bank owned private-issue mortgage-related securities from Countrywide Financial Corp. and Bank of America Corp. at a market value of $140 million and $137 million, respectively.

In January, Bank of America Corp. agreed to acquire Countrywide, the nation's largest mortgage lender and servicer, for $4 billion in stock. Countrywide lost $1.6 billion in the last six months of 2007 as higher defaults forced it to boost its provisions for anticipated losses.

As of Dec. 31, American Savings was the state's third-largest financial institution based on total assets of $6.9 billion and deposits of $4.3 billion. Last year, the bank's revenues and net income amounted to 17 percent of HEI's consolidated revenues.