When you travel to Las Vegas you can make a bet on nearly every sporting event. Perhaps in 2010, the odds makers in Sin City will allow people to wager on the number of failed banks nationwide.
Few would have expected a total of 140 United States banks to fail in 2009, up from 25 in 2008 and a mere three in 2007, according to Zacks Investment Research. The Federal Deposit Insurance Corporation Chairman Shelia Bair stated that the worst of the bank failures are not over yet and bank failures will accelerate this year. During the first 15 days of the year alone, four banks — in Utah, Minnesota, Illinois and the State of Washington — were closed by the FDIC.
Last year, some of the biggest failures were banks which were involved extensively in providing real estate financing — Corus Bank, BankUnited, AmTrust Bank to just name a few. And today, many of the banks under review are financial institutions which were intimately involved in commercial real estate financing.
Locally, a number of New York and New Jersey financial institutions are under cease-and-desist or formal agreement with the government to raise capital and discontinue commercial real estate lending.
It looks like a number of New Jersey banks thought it was a smart move to provide financing for commercial real estate during the last decade. At least 12 institutions in the Garden State are in jeopardy of closing their doors this year due to a lack of supervision of the operation of their banks and in their real estate lending. Perhaps the largest bank to be in dire straights is the $2.8 billion Old Bridge, NJ Amboy National Bank. In Newark, the home of Prudential Insurance Company, regulators are worried about the future of City National Bank of New Jersey and Millennium bcpbank. Other Garden State lenders on the watch list are First State Bank in Cranford, Hamilton-based Grand National Bank and Roebling Bank.
Four New York City-based real estate financing institutions — the LibertyPointe Bank, Modern Bank, Park Avenue Bank of Manhattan and Savoy Bank — are under cease-and-desist or formal agreements with the government. All of these banks have a number of similarities including limited years of operation, under capitalization and an active desire to lend on commercial real estate.
As one senior executive of a bank who is under a cease-and-desist order and asked for anonymity said, “unfortunately, many of the loans that we provided financing in 2006 and 2007 were for commercial real estate. The bankers who originated these loans are no longer working for our institution and in retrospect we should have not hired these employees and booked these loans.”
Since I am not a betting man, I won’t make a wager for the number of banks to fail in 2010 besides predicting that the number will increase over 2009 by at least 10 percent, which puts the failure count at 154.
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.