SAN FRANCISCO (AP) -- UnionBanCal Corp. needs to set aside more money to cover unpaid loans to homebuilders because of decaying credit quality in the industry, the bank said Friday.

UnionBanCal, which runs more than 320 branches on the West Coast, in October said it expected to set aside $15 million to cover bad loans in the fourth quarter. On Thursday, the bank said it now expects to contribute $60 million to its reserve.

This reserve, coupled with the bank's share of Visa's $2.1 billion settlement with American Express, will shrink income from continuing operations to 76 cents per share to 81 cents per share, the bank said. In October, the bank forecast profit of $1.07 per share to $1.12 per share.

Because of a $61 million gain on UnionBanCal's sale of its retirement recordkeeping business to Prudential Financial Inc., the bank expects net income of $1.17 per share to $1.22 per share.

A bigger reserve against loan losses is necessary because of disintegrating credit quality in the bank's $850 million portfolio of loans to homebuilders, which represents 2 percent of the bank's total loans.

With many homebuilders losing money, home prices sinking, and more than 10 months' worth of unsold homes sitting on the market, the bank assumes greater risk in its loans to homebuilders.

"Given the poor fundamental conditions in the homebuilding industry today, and the weak outlook for the industry, we concluded that it was appropriate to increase reserves for probable future loan losses," Chief Operating Officer Philip Flynn said in a statement.

The bank expects a $90 million provision against credit losses this year, roughly the same as the provision from 2007.

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