Even if banks were being completely honest about their marks — which we know they’re not — the accelerating collapse of the commercial real estate market would mean billions more in writedowns.
WSJ: The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to The Wall Street Journal by Deutsche Bank AG. While that’s low compared with the home-mortgage delinquency rate, it’s just short of the highest rate during the last downturn early this decade.
Some experts say it now looks as if the current commercial real-estate slump will rival or even exceed the one in the early 1990s, when bad commercial-property debt played a big role in dragging the economy into a recession. Then, close to 1,000 U.S. banks and savings institutions failed. Lenders took about $48.5 billion in charges on commercial real-estate debt between 1990 and 1995, representing 7.9% of such debt outstanding. Read the whole thing >
This is one area in particular where banks are carrying assets an unrealistically high levels. Citigroup (C) is marking many of its loans at .95 on the dollar and up. And though it’s already rivaling the last bust, our sense is that this will prove to be far worse than that one, deliquency-wise, when all is said and done.
Here’s the report from Richard Parkus at DB on which much of the WSJ story was based:
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