Banks' Commercial Loan "Nightmare" and Other Web Notes

Banks' Commercial Loan "Nightmare" and Other Web Notes - 11/9/2009 , Class Action News, Class Action, Securities News, shareholder class action, claim, litigation, securities action, common stock'>

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Banks' Commercial Loan "Nightmare" and Other Web Notes
Kevin LaCroix

The D & O Diary. November 9, 2009
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EXCERPT: The onslaught of bank closures continues. The FDIC’s closure of five more banks this past Friday night brings the 2009 YTD total number of bank failures to 120 – including twenty-one in just the last three weeks alone. There are a variety of reasons for the growing number of bank failures, but clearly one important reason is the continuing deterioration of commercial real estate loans. As I noted in a prior post, there may be further bank failures ahead as commercial real estate mortgages come due or default. A November 5, 2009 BusinessWeek article entitled "The Commercial Loan Nightmare Facing U.S. Banks" suggests that banks’ commercial real estate loan problems may be worse even than may be currently apparent. According to the article, "many banks have been forestalling the day of reckoning" by using an approach the article described as "extend and pretend," which consists of allowing "temporary extensions to trouble borrowers on maturing commercial loans to give them, and the bank, some breathing room." The problem for the banks is that "surging delinquencies and defaults will eventually catch up with them." Many banks are currently showing no charge-offs, but as much as $500 billion in commercial real estate loans will mature within in coming months, while commercial real estate values have declined as much as 40 percent since the beginning of 2007. As these issues catch up with the banks, according to the article, more banks could fail. The article includes a list of the 30 publicly traded banks that may have the most exposure to commercial real estate. The 30 banks have more than 50 percent of their loan portfolios in commercial real estate loans.

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