Banks not worried enough about commercial real estate, Fed says

The Wall Street Journal ran a good story on Wednesday about the Federal Reserve’s concerns that US banks have been slow to take losses on their commercial real-estate loans.

According to the WSJ, the Fed expressed its concerns in a presentation to banking regulators in September:
The remarks suggest that banking regulators are girding for a rerun of the housing-related losses now slamming thousands of banks that failed to set aside enough capital during the boom to cushion themselves when the bubble burst. “Banks will be slow to recognize the severity of the loss — just as they were in residential,” according to the Fed presentation, which was reviewed by The Wall Street Journal.

Here, however, is the kicker (emphasis ours):
In another sign that many U.S. financial institutions are inadequately protected against potential losses on commercial real-estate loans, banks with heavy exposure to such loans set aside just 38 cents in reserves during the second quarter for every $1 in bad loans, according to an analysis of regulatory filings by The Wall Street Journal. That is a sharp decline from $1.58 in reserves for every $1 in bad loans from the beginning of 2007.

The Journal’s analysis includes more than 800 banks that reported having more half of their loans tied up in commercial real-estate, ranging from apartments to office buildings to warehouses.

Gulp.

Fortunately for the bulls out there, CNBC managed to find some “vultures going into this very distressed area and finding opportunities”. Click on the image below for a video featuring Barry Sternlicht, chairman and CEO of Starwood Capital on opportunities in commercial real estate:

Screenshot of Barry Sternlicht, chairman and CEO of Starwood Capital on CNBC :

http://www.cnbc.com/id/15840232?video=1286073669&play=1

Source :

http://ftalphaville.ft.com/blog/200...enough-about-commercial-real-estate-fed-says/

Maybe the FED should contact Goldman and ask for a "sober " risk solution ?

 

Wait, why should they be worried when they know they'll just get bailed out whenever they have an issue? If they know they're "Too Big To Fail", there's no incentive to protect themselves.

 

Banks CAN'T write down commercial real state losses yet.

Their balance sheets can't withstand this shock, and they know it.

 

Yep. and its probably why the markets are even more risky now than in the fall

 

this is a huge shoe to drop

massive retail overbuilding for a "cash out re-fi" home appreciation economy

 

They should not be worried, they have the taxpayers money if they need it.

Everyday I go out I take notice the availability of commercial real estate, I can say near me there are dozens of spaces available, from 3000 sq ft to over 50,000 sq ft. The problem is some of these retailers opening up near me are just not understanding it. They are opening up more clothing stores, furniture stores, drugstores like CVS and rite aid, do they not know how saturated the market place still is.

 

Sounds like many new businesses are opening up in your area. They obviously don't know what they're doing. You need to get out there and tell them how bad everything is.

 

Will they be in business 1, 2 or even 10 years out.... Maybe, but why the need for more worthless retailers in an already crowded market. There are 4 dunkin donuts within a mile of each other. Do we really need this. One or two aren't sufficient enough I guess. Ill let them know how bad everything is when I step into the store and see more employees than customers.