Commercial lending is going bad at a pace not seen in two decades, according to analysis done by WSJ.
U.S. banks have been charging off soured commercial mortgages at the fastest pace in nearly 20 years, according to an analysis by The Wall Street Journal. At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.
The losses by regional banks on their commercial real-estate loans will be among the most watched details as thousands of banks report second-quarter results over the next two weeks. Many of the most troubled banks have heavy exposure to commercial real estate. So far, 57 banks have failed this year. Everybody knows this space is bad. The real question is whether the regionals have been honest about their losses thus far.
In contrast to home loans, the majority of which were made by about 10 lenders, thousands of U.S. banks, especially regional and community banks, loaded up on commercial-property debt.
Ironically, small banks appear to be much less aggressive in recognising losses than their bigger brethren. According to the Journal analysis, the largest banks, with assets of more than $100 billion, saw charge-offs roughly quadruple last year, while losses at many medium-size banks grew at a much smaller rate of 120%.
The banks the paper contacted all say they’re being honest with their books (but then, banks don’t typically say: “Well, sure, we’re fudging the numbers a little.”)
If things do worsen appreciably, and the pace of bank failures quickens and spreads to larger, regional institutions it would appear to back up the questions we posed last week, whether larger, sysemtically-important institutions are the problem.
The thing is, it’s easy to bail out a Citigroup (C) or a Bank of America (BAC). You just ply them with a whole lot of cash and keep them going — as ugly and unappealing as that is. But with the thousands of smaller banks out there, though the task may be cheaper on a one-off basis, it’s ever more complicated on a mass basis.
It’s possible that the sequence of the financial crisis — housing collapsed first, slamming the big banks — has made pundits improperly focus on bank size as being a key issue.
Meanwhile, this recently-released chart from Moody’s offers yet another picture of how out-of-proportion the commercial real estate collapse has been.
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