Looks like they’re going to need it
This morning, Treasury Secretary Tim Geithner told a group of community bankers that the government will take the bailout money repaid by big banks and give it to small ones. Based on what’s happening in the commercial real estate market, the small fish may desperately need the capital.
As commercial loans go bad, it will be particularly hard on regional banks, said Joe Morford, a San Francisco-based analyst for RBC Capital Markets, because their main customers are the small and medium-size businesses whose ranks include many developers.
The FDIC says seriously delinquent loans for office buildings, malls and apartments has shot up nearly ninefold the last two years. Dominic Ng, chairman of East West Bancorp in Pasadena, CA, says commercial mortgages make up 40% of his bank’s loans. Again, from the LA Times:
Most of the loans were secured not only by the properties but also by the personal fortunes of the developers. Now, many have been wiped out by the recession, making the loans uncollectable.
“Some of the borrowers say: ‘Go ahead, come after me. I have absolutely nothing left,’ ” Ng said. “The net worth completely disappeared in 12 months.”
We’ve known for months that commercial real estate was probably the next shoe to drop. Well, it has hit the ground. Here in Southern California, several small banks have already gone under because of exposure to commercial real estate loans.
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