Editor’s Note: The drumbeat is getting louder for commercial real estate being the next leg down. If you have followed this site since it went online, it said been repeated over and over again. Many local and regional commercial banks are taking huge losses on their commercial loan portfolio because of defaults on behalf of borrowers.
Vacancies are rising and many of these loans were written at a very high valuation making any lose of tenets a larger than normal increase to the risk of default. I still firmly believe some program will have to be put into place to try and curb this situation or it will drag down on our already fragile recovery.
Reuters, New York - The next big headache for banks is likely to be commercial real estate and analysts expect big losses and another wave of bank failures to result.
Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 percent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks are better diversified.
The banks that analysts say could risk big losses include Salt Lake City’s Zions Bancorp, Columbus, Georgia- based Synovus Financial Corp and Dallas-based Comerica Inc.
But it is not just earnings that are at stake — bank failures could surge in the coming quarters.
“The serenity of the quiet closure of two to three banks per week is soon going to come to an end,” said George Ball, chairman of Sanders Morris Harris Group, an investment bank and investment adviser, in Houston.
Banking regulator the Federal Deposit Insurance Corporation had 416 banks on its watch list of problem banks at the end of the second quarter and veteran analyst Dick Bove at Rochdale Securities expects another few hundred will fail in the next few quarters.
You must log in to post a comment.