Real estate loans still threaten banks

TRD MIAMI /
Jan.January 11, 2011 03:54 PM
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Based upon early indicators last January, it looked like some 200 banks were on track to fail in 2010. The number didn’t reach that high, but more banks went under across the country last year than in any year since 1992, during the savings and loan crisis.

Commercial real estate loans are the problem for many troubled banks these days, showing that not all lenders can use “extend and pretend” to get through the downturn.

The nation closed out the year with 157 bank failures, up from 140 in 2009. And while the total number of failures increased last year, the total assets of failed banks declined by more than 40 percent.
 

In 2009, six multibillion-dollar banks with assets in excess of $10 billion failed, the largest being Colonial Bank with $25 billion in assets. In 2008, there were 25 bank failures with assets totaling $376.6 billion. The largest failure in the year was Washington Mutual Bank with assets of $307 billion, by far the largest bank failure in recent history.
 

New York State only had three failed financial institutions last year, and they all had expensive exposure to commercial real estate lending. The latest to fail was Port Chester, N.Y.-based USA Bank in July. In March, the Park Avenue Bank and LibertyPointe Bank were closed by regulators.
 

Many industry leaders say that many small, undercapitalized financial institutions with a high concentration of real estate loans are in trouble of failing. There were 935 financial institutions on an unofficial list of problem banks compiled from public sources by the finance and economics blog, CalculatedRiskblog.com.

A total of nine banks were added to the blog’s list of troubled banks in New York City, Nassau and Suffolk County in 2010.

The majority of these financial institutions were added to the list due to an enforcement action by regulators for consent orders — supervisory, written or formal agreement — or a cease-and-desist agreement with regulators. In many instances the major reason for these agreements related to the financial institutions’ loans for commercial and residential real estate.

On Friday, two banks with exposure to commercial real estate lending were closed by regulators. The FDIC closed the 13th largest bank in Central Florida, the First Commercial Bank of Florida with total assets of $598.5 million. The second bank to fail was the $150.6 million Legacy Bank of Scottsdale, Arizona.

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.
 


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