Banks Not Even Half Way Through CRE Writedowns
December 3, 2009
Moody’s is estimating that banks still have about $336B in write-downs to take next year, with $186B of that stemming from commercial real estate. While residential real estate is widely assumed to have peaked, and is spread across a large number of banks, commercial real estate losses remain on the back burner and are concentrated amongst a smaller number of banks.
[via The Street]
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Categories:
Commercial Finance and Lending | Commercial Real Estate Investing | Market Data
Tags: Banks, Commercial Real Estate, Loan Losses, Moody's
Tags: Banks, Commercial Real Estate, Loan Losses, Moody's
did you catch the real property alpha post today? treasury officials comments on workouts were pretty awe inspiring. dont expect too many writedowns (as if we didnt know that already).
The government's policy is clear, just look at the FDIC guidance recently issued. But write downs will come, but they will be on the back of the taxpayers. The FDIC takes over a troubled bank, takes the hit, and then resells the deposits and loans to another bank. That bank now has a basis at which the owner and lender can work with. That's why you see PE money trying to move up the chain and get into banking, they don't see much movement at the bank level.
….but that still leaves a big void in the CMBS loans held by the likes of CalPERS and other endowments, pension funds, etc. Even if 30% of the expected write-downs materialize, it's still a big number that will detract from bank's ability to lend and help turn this ship around.
agreed. ive read through the FDIC releases regarding workouts and their goal is clear. do whatever it takes, regardless of LTV, to keep the loan current and it wont impact your books and we wont make demands of you. its for these reasons that i feel we wont see any real volume of writedowns. its smoke and mirrors for as long as possible.
the CMBS issue will see lots of interesting legal challenges. were already seeing a couple of them. i wonder who will be left holding the bag in the CMBS case. thats going to be an interesting scenario to watch play out and how it will affect future securitizations. (my thoughts on that are that future securitizations will only sell off senior tranches and the sponsor will be required, by law or the market, to be in the deal maybe 5-10% and take the first loss. my two cents at least)
Banks are unwilling to take the write-downs that they should. They want to avoid raising red flags and endanger the public's perception. On one hand, they may be justified. The FDIC certainly thinks so. The reason that I say this is that if the debt service is being covered, the loans may not be in any danger of defaulting, just because the underlying valuation has changed.