There's a bit of good news and bad news for commercial banks. The good news, according to the CRE-beat blog, is that commercial real estate loans shouldn't bring down the nation's largest banks (in excess of $1 billion in assets). That's because CRE loans account for only 18% of their loan portfolios. The bad news is that for small banks (under $1 billion in assets), CRE loans account for 40% of their loans, which means that community banks are much more vulnerable to continuing CRE woes.
A commenter asks an interesting question which, as of the time this post was written, had not been answered: "Does your calculation of an institution’s CRE loan portfolio include only loans or does it also include CMBS/CDO positions?" If it doesn't include CMBS positions, then bad banks, too, might in for a bad time as CRE values continue to take hits.
FinCriAdvisor has related news, again good for large banks and not good for community banks.
Despite hand-wringing over the dearth of bank lending, the amount of loans held by financial institutions has dropped only slightly since the crisis unfolded a year ago, a FinCri Advisor analysis shows. Total loans are about the same as two years ago, amid steady increases of commercial real estate, multifamily and farm loans.
Total loans and leases at all financial institutions - the line item FDIC Senior Banking Analyst Ross Waldrop cites to FinCri Advisor as the key data point to explore - is down just 1% since Sept. 2007, standing at $7.63 trillion at end-June. Since the crisis began, loans have fallen steadily 1.4%-1.8% per quarter and 4.5% overall. But 90% of that decline is from banks with $10 billion or more in assets.
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Now the bad news for community banks: Money center banks have seen sudden increases in lending, whereas the rate of decline is accelerating at smaller institutions, FDIC data show. While mortgage lending surged 3.6% last quarter at big banks, for community banks whose bread and butter is mortgage loans, they fell 1%.
"The statistics you present show the creeping seriousness of the problems at banks," says former bank CEO John Mason, now a finance professor at Penn State University. "One of the problems at banks is that they tend to postpone writing off loans. They always think things are going to get better. Even when regulators come along, they have their stories."
That tendency ultimately shows up in dire new figures, Mason says. Over the past five weeks, the absolute (not percentage) decline in loans made by non-money center banks (a decline of $69 billion) has for the first time outstripped that of the top 25 banks ($66 billion), speeding a pattern that emerged over the past quarter, according to Federal Reserve data. The differences are most acute in real estate loans, which fell $48 billion in the last five weeks, of which $38 billion was shed by non-money center banks.
"Here we find the startling difference," Mason notes: Most of the drop for the smaller banks was in commercial real estate loans, with CRE accounting for $24 billion of the $38 billion decline during the 5-week decline. "CRE lending really tanked in the last four weeks in the small banks. You hadn't seen this before," he says. "The economic difficulties in commercial real estate could continue to paralyze the smaller commercial banks for quite some time."
The FinCriAdvisor post contains additional grim statistics and warnings by Sheila Bair, Mason, and others that confirm what those of us in the trenches have been seeing for some time now: CRE problems are bad and they're going to get worse, especially for community banks. For too many of the little guys, it's not a question of having enough capital to lend, it's a question of having enough capital to survive. On the other hand, their big brothers, flush with capital (some of it TARP CPP capital), are grabbing, and will continue to grab, "market share." Thus, while the ranks of community banks will continue to be thinned, too-big-to-fail banks will get bigger.
What's wrong with this picture?






