Interest Rate Roundup

Tuesday, January 13, 2009

More losses on commercial R.E. loans looming

The evidence of a second real estate crisis -- this time, focused on the commercial sector -- continues to pile up. According to the following Bloomberg story this morning, the next batch of banking sector earnings reports could be rather ugly ...

"Synovus Financial Corp., Comerica Inc. and Huntington Bancshares Inc. are among regional banks that may face a second wave of real-estate loan losses, this time for shopping centers and residential construction projects.

"Losses in commercial real estate excluding construction are expected to increase tenfold, Deutsche Bank AG analyst Mike Mayo said in a Jan. 5 research note. Moody’s Investors Service said yesterday it’s considering a downgrade of Synovus because of commercial real estate losses.

"Borrowers have fallen behind on payments to regional lenders as the year-old recession shutters retail stores and offices.

"Overdue commercial real estate loans quadrupled from two years earlier in the third quarter to 4.73 percent, according to seasonally adjusted data from the Federal Reserve. That’s the highest level since 1994.

"We’re overbuilt in a lot of areas like shopping malls,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. Apartment developments are also suffering as falling home prices draw people away, he said. “The fundamentals are on the verge of going really, really negative for commercial,” McCain said."


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