Tuesday, November 8, 2011

Failed banks in October tied to commerical real estate losses and depreciation

There were 11 banks that closed their doors in the month of October, but it appears there was a major difference between these banks, and the 74 that had shutdown earlier in the year.  Whereas the primary cause for most of those banks to fail was residential loans and mortgages, these new banks were instrically tied to commercial real estate.

(A review of the 11 bank failures can be found here)

Trepp’s report looks at the October failures and the makeup of each bank’s portfolio to ascertain nonperforming loan attribution. The company’s analysts found that commercial real estate exposure was the main driver behind problem loans for the banks that went under in October.
Commercial real estate loans comprised $401 million (65.1 percent) of the total $617 million in nonperforming loans at the failed banks. Construction and land loans made up $254 million while commercial mortgages comprised $147 million of the total nonperforming pool. - DSNews
For many observers and analysts, this is the final shoe that the real estate markets have been watching for to drop.  The commerical real estate industry is much larger than the residential one, and if the trend is headed towards massive drawdowns and non-performing loans, the number of banks that could very quickly fail would jump into the dozens or even hundreds.


Post a Comment