subject: Analysts Predict Real Estate To Propel More Bank Failures [print this page] As if the current economic pitfall wasnt troublesome enough, Reuters is reporting that the next pain to force its way onto the banks of American banks could very well be commercial real-estate. And according to analysts, giant losses resulting in another trend of bank failures could be on the horizon.
As of the end of September, banks held approximately $1.7 trillion in commercial real-estate loans, equivalent to 15 percent of their total assets, according to Federal Reserve data. These loans are expected to weaken in time and because theyre better diversified, larger banks such as JPMorgan and Chase arent expected to be hit as hard as the smaller banks.
Comerica Inc. in Dallas (CMA.N), Colombus, Georgias Synovus Financial Corp (SNV.N) and Salt Lake City based Zions Bancorp (ZION.O) are three small banks that analysts believe could be at the greatest risk for big financial losses. But winding up in the red might not be the biggest concern as bank failures could be looming around the corner.
"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, a Houston based investment bank and investment adviser.
The Federal Deposit Insurance Corporation, an American banking regulator, had recently compiled a list or 416 problem banks and according to Dick Bove, a veteran analyst at Rochdale Securities, another hundred banks or so are expected to fail within the next 9 months.
After recording losses in condominium development and commercial real-estate in California, Arizona, Nevada and Florida, the Chicago-based Corus Bank was shut down on September 11 by the FDIC (Federal Deposit Insurance Corp.), who shut down the Warren Bank in Michigan less than a month later. Commercial real-estate composed nearly 40 percent of Warren Banks $395 million in loans, and according to the banks website, "real estate lending has long been the specialty of Warren Bank."
Due to the modern dangers of commercial mortgages, analysts fear that banks such as Warren and Corus may be the initial bank failures that trigger a snow-ball effect within small American banks. In an effort to forestall posting massive losses, analysts say that many banks have intentionally been slow to recognize commercial mortgage losses in the hopes that loan term alterations and an improving economy can keep the loans afloat. This is a banking phenomenon that has come to be known as extend and pretend.
According to Tom Mitchell, an analyst with Miller Tabak & Co, "it takes a long time for an actively rented commercial real estate space to get to a point where a bank can't be flexible in terms of conditions and has to start writing it down.
