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UPDATE 2-Webster to record $19 mln reserve in Q2 on jury ruling
June 1, 2010 / 2:10 PM / 8 years ago

UPDATE 2-Webster to record $19 mln reserve in Q2 on jury ruling

* Says to reserve $18.95 mln in Q2 related to lawsuit

* Co expects to appeal

* Sees additional expenses related to the claim (Adds analyst comments, updates share movement)

BANGALORE, June 1 (Reuters) - Webster Financial Corp (WBS.N) said it will record a reserve of $19 million in the second quarter, after a jury ruled against its banking unit and asked it to pay compensatory and punitive damages to an Ohio-based developer.

The case relates to a claim by the developer of the Broadwin condominium conversion project, and 24 unit purchasers in the project, who sought damages for the bank’s refusal to continue to fund construction draws, Webster said in a filing.

“The $19 million charge is more than the current consensus expectations for net income in the second and the third quarter. So, the charge in itself wipes out two quarters worth of earnings,” analyst Matthew Kelley of Sterne Agee & Leach said.

Analysts, according to Thomson Reuters I/B/E/S, were expecting the company’s net profit for the second quarter to be $5.8 million.

Kelley said the company was surprised by the verdict and did not expect the kind of punitive damages.

    Of the $19 million in damages, the company was asked to pay $12.15 million in punitive damages to the developer and unit purchasers.

    The company said it expects to file an appeal, but believes the process could take up several years to complete.

    “The appeal will take several years and the accounting forces them to take a charge in the current quarter,” Kelly said.

    In April, Webster posted a loss of $6.1 million, or 8 cents a share, for the first quarter.

    Shares of the company were down about 2 percent at $18.81 Monday in late morning trade on the New York Stock Exchange. (Reporting by Abhinav Sharma in Bangalore; Editing by Vyas Mohan, Aradhana Aravindan)

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