(Ahem...and I predicted this in Dec. 2007...came within one month - April 2010)
TARP Panel: Small Banks Are Facing Loan Woes
FEBRUARY 11, 2010
By CARRICK MOLLENKAMP And MAURICE TAMMAN
http://online.wsj.com/article/SB1000142 ... st_Popular
The ReportNearly 3,000 small U.S. banks could be forced to dramatically curtail their lending because of losses on commercial real-estate loans, a congressional inquiry concluded.
The findings, set to be released Thursday by the Congressional Oversight Panel as part of its scrutiny of the Troubled Asset Relief Program, point to yet another obstacle for the slow-moving economic recovery. The small banks being threatened by loans they made for shopping centers, offices, hotels and apartments represent a major cog in the U.S. credit system, especially to entrepreneurs.
"The banks that are on the front lines of small-business lending are about to get hit by a tidal wave of commercial-loan failures," said Elizabeth Warren, a law professor at Harvard University who heads the TARP oversight panel.
Concern about banks' exposure to commercial real estate has been building for months. Job losses, corporate retrenchments and curtailed spending by many Americans are increasingly squeezing banks that financed commercial properties. Some troubled lenders were previously battered by residential mortgages that soured when the housing bubble burst, leaving banks with less capital to cushion them from commercial-real-estate-woes.
Of the roughly 8,100 U.S. banks, some 2,988 small institutions have problematic exposure to commercial real-estate loans, according to the oversight panel's report. That means their level of commercial real-estate loans is at least 300% of total capital or their construction and land loans exceed 100% of total capital.
In the 183-page report, the panel said it is "deeply concerned" loan losses could jeopardize the stability of many banks. Since January 2008, 181 banks and savings institutions have been seized by regulators, including 16 so far this year. The panel based its analysis on guidance issued by the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. on risk-management practices for commercial-property lending...
... Few experts are predicting a resurgence in commercial real estate anytime soon. Commercial real-estate debt in the U.S. totals about $3.4 trillion. Of that amount, banks hold $1.5 trillion, or 45%. Bondholders who own pools of real-estate debt hold $708 billion, or 21%.
Over the past decade, many banks increasingly relied on property loans for profits. According to the oversight panel, as of 2003, banks with $100 million to $1 billion in assets had commercial real-estate portfolios equal to 156% of their total risk-based capital. By the third quarter of 2006, that ratio had increased to 318%. The concentrations have been especially worrisome in the western and southeastern U.S., the panel's report said.
(...yes, it's 190 pages, but if you want to REALLY know what's happening within the U.S. economy, you have to read occasionally and not rely on MSM soundbites.)
http://cop.senate.gov/documents/cop-021110-report.pdf
Interestingly, the oversight panel's focus is on the banks, not the overall commercial real-estate market and the potential impact it will have on the larger REIT's and publicly traded corporate balance sheet portfolio's.
