Regional Banks Like Fifth Third (FITB) Slammed As Construction Loans Go Bad

Small and mid-size regional banks are the latest to get hammered by the credit crunch (NYT).

Fifth Third (FITB), a regional bank in Ohio, cut its dividend yesterday and announced a $2 billion capital raise. The trouble? Bad loans in residential real estate, commercial mortgages, and commercial construction. Which is where the most regionals and community banks are getting slammed:

Home mortgages and other loans that the banks made in good times are souring so fast that many of the lenders are scrambling to prop themselves up. If the pain worsens — and many analysts say it will — some of these banks, like Fifth Third’s predecessors, may eventually seek out suitors, most likely large national rivals.

The good news: Observers still believe the current crisis isn’t likely to reach the level that accompanied the S&L scandal in the late 80’s:

Small and midsize lenders are in far less danger than they were during the 1980s and early 1990s, when about 1,600 federally insured institutions failed during a savings and loan crisis.

We’re curious to hear the logic behind this.


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