Jan. 14 (Bloomberg) -- Sovereign Bancorp, Pennsylvania's second-largest bank, said a pullout from auto lending in some regions and the 2006 purchase of Independence Community Bank Corp. led to $1.58 billion in fourth-quarter pretax charges.

The company stopped making car loans in the Southeast and Southwest of the U.S. and bolstered its provision for bad loans of all kinds, Philadelphia-based Sovereign said today in a statement. The bank also reduced the value of its consumer and New York regional units, with Brooklyn-based Independence producing less revenue and deposit growth than expected.

``Acquisitions are definitely on the back burner for us now,'' Chief Financial Officer Mark McCollom said today in a telephone interview. ``This doesn't change the strategic value we place on New York.''

Sovereign's report adds to evidence that credit losses are spreading in the banking system from mortgages into consumer and automobile loans. American Express Co. took a $275 million charge last week as the rate at which customers repaid loans worsened abruptly in December, and Capital One Financial Corp. said the slowing economy made it harder for borrowers to keep up with credit-card and auto loans.

Sovereign fell 5 cents to $10.63 at 4:01 p.m. in New York Stock Exchange composite trading. The lender dropped 59 percent in the past year, compared with the 17 percent decline at Pittsburgh-based PNC Financial Services Group, Pennsylvania's biggest bank.

Job Cuts

Sovereign will cut 50 jobs as it shuts its car-financing business in seven states including Arizona, Nevada and Florida. The bank's regional losses on automobile loans, which were sold through dealers, exceeded expectations, McCollom said.

Sovereign probably will reduce the provision for credit losses to $148 million in the fourth quarter from $162.5 million in the third quarter, said the statement. The company increased loss reserves by $252 million in 2007, to 1.28 percent of loans from 0.88 percent.

``It's a major hit to earnings,'' said Lee Calfo, an analyst with Boenning & Scattergood Inc., in West Conshohocken, Pennsylvania. ``If they had it to do over again in hindsight, clearly they'd want the capital they spent on that acquisition.''

The quarter included a pretax charge of about $27 million for losses tied to the financing of two unnamed mortgage companies, and $180 million linked to the declining value of preferred stock securities from Fannie Mae and Freddie Mac, the two largest sources of funds for U.S. mortgages.

`Contained'

``The remaining exposure to mortgage finance companies is contained,'' McCollom said.

Net interest margin, the difference between what a bank pays for deposits and what it earns on loans, expanded and fee income was ``solid,'' Sovereign said, without disclosing the numbers. The bank is expected to announce complete fourth-quarter results Jan. 23.

The $3.6 billion purchase of Independence was opposed by shareholders including Relational Investors LLC and helped lead to the ouster of former Chief Executive Officer Jay Sidhu. Joseph Campanelli replaced Sidhu in October 2006. Banco Santander SA, Spain's biggest bank, held 24.5 percent of Sovereign shares as of June 15, according to Bloomberg data.

Sovereign expects to be able to run its businesses ``without disruption under a wide range of scenarios, including deterioration consistent with prior economic recessions,'' Campanelli said in the statement.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

Last Updated: January 14, 2008 16:03 EST