This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Banks' $300 Billion 'Pretend' Problem

Although commercial real estate has been able to keep its head above water over the past several years as occupancy rates remained stable, industry watchers are already seeing signs of weakness.

"Our detailed research through earnings reports and call report filings from smaller banks indicates that the recovery in delinquency rates that began in the second quarter of 2010 appears to have stalled," said Matt Anderson, managing director of real estate research firm Trepp, in an April report. "This underscores the fact that markets have not yet truly recovered and also reflects anemic growth for both residential and commercial real estate."

Trepp estimates that over $1.7 trillion in commercial real estate loans will mature between now and 2015, with over $300 billion each year between now and 2013.

Gorczycki said underperforming commercial real estate deals are rising just as billions in loans are set to renew over the next 18 months, forcing many banks to either find a way to refinance or face the losses.

"Rolling has worked as values rebounded and many cases banks were able to kick the can down the road," Gorczycki says. "But all that has meant is there will be just more rollovers in 2012 and 2013. At some point there is no doubt that clock will stop."

While there is no definitive list of which banks have the most to lose if commercial real estate rollovers cease, Fitch said banks with the highest non-owner occupied commercial real estate concentrations include Cathay General Bancorp (CATY), CVB Financial (CVBF), AmeriServe Financial (ASRV), Sterling Bankshares (SBIB) and First Midwest Bancorp (FMBI).

In addition, Fitch said banks with the highest percentage of restructured loans (both residential and commercial) include Citigroup (C), JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and SunTrust Banks (STI).

The banking industry's reliance on extend and pretend has some merit, Gorczycki said, adding that if there is no reason to sell a property there is no reason to take a loss on the loan.

However, the buildup of billions in loans with little liquidity to extend the maturities going forward means that some banks will be taking "monstrous losses," Gorczycki said.

"Part of our whole business model was to rollover the loans," he added. "Low rates and rising value cure all. The problem is that it doesn't last forever."

-- By Christopher Westfall.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
RF $9.44 1.10%
AAPL $110.35 -1.80%
FB $88.17 -1.90%
GOOG $605.84 -1.40%
TSLA $245.72 -0.80%

Markets

Chart of I:DJI
DOW 16,374.76 +23.38 0.14%
S&P 500 1,951.35 +2.49 0.13%
NASDAQ 4,735.99 -13.9890 -0.29%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs