Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Matthew D. O’Connor - UBS (US).
Matthew D. O’Connor - UBS (US)
You provide a lot of good detail on the reserves and asset quality by subcategory and specifically I’m looking on page 24 in the commercial breakdown, and it just seems like there’s been a lot of deterioration in terms of higher nonperformers, higher charge-offs and the loan loss reserves have only gone up a little bit. I was just wondering if you could revisit how you reserve there and if there might be more meaningful reserve build going forward.
Kenneth D. Lewis
Matt, I think focusing on that slide to look at it is a good way to do it because if you look at some of the increases that have occurred compared to the charge-off rates that we’ve seen, I referenced in my prepared remarks the core commercial business when you exclude small business and the commercial real estate, and there charge-offs went from about 13 basis points up to 28.
We did see an increase in nonperforming loans in that book of business and we did see a sizable increase quite frankly in criticized utilized, but if you look at where we reserved for that business we’re reserved at just under 100 basis points, or 94 basis points. What we would generally say is we’re still running below our normalized range of losses for that portfolio, which is obviously the largest of the portfolios, so it’s somewhat a function of our existing reserves in addition to the details of the underlying loan quality.
Matthew D. O’Connor - UBS (US)
I guess specifically on the commercial real estate book where there’s been a little more deterioration and the reserves just picked up a couple bits?
Kenneth D. Lewis
The commercial real estate is where we have built some level of reserves before but a very similar approach to that. Obviously the homebuilders are the place that had the weakest borrowers from that standpoint, so we would expect to see continued elevation in the charge-off rate on the commercial real estate side but not to the extent of some prior downturns where you saw a very different kind of commercial real estate lending. And that’s kind of what’s driving the view of how much we reserve there.
Matthew D. O’Connor - UBS (US)
And Ken, maybe you could just provide a little more color in terms of the timing of the capital rates here? Obviously a lot’s changed the last couple of weeks and it seems like the timing could be very smart before either Wells or Citi gets out there with their raises and the shorts come back in. But how much of it is the environment as you’re looking forward thinking that commercial losses and consumer losses will be a lot higher? How much of it is more Merrill deal and how much of it is just opportunities to grow organically since a lot of other banks are pulling back?
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