A coming “hurricane” of loan defaults, says this guy. Makes sense to me.
NEW YORK (Reuters) – Sooner or later, office buildings and other commercial real estate financed during the credit bubble will generate hurricane-scale losses for banks.
Banks in recent years have been hammered by losses on home mortgages, buyouts and corporate defaults. Now, lenders face big losses from loans backed by commercial real estate, where a stagnant economy will eventually take its toll, financial services executives told the Reuters Global Finance Summit.
“The commercial real estate business still has not been marked down. It’s not been marked to market,” Cantor Fitzgerald LP Chief Executive Howard Lutnick said. “The economy can’t, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building and take up all these rents at $60 a foot. It’s nonsense.”
Yet banks have postponed their day of reckoning, extending loans in hopes the economy will improve and demand for space will rebound. Banks have resisted selling assets, or taking them away from underwater borrowers, in fear of setting a new and lower market price.
It is a strategy neatly summarized as “a rolling loan gathers no loss,” Lutnick quipped.
[snip] Banks do have a few things going in their favor. Chief among them is a friendly Federal Reserve, whose policy of free money lets banks reap windfall lending profits.
“The Fed has pushed interest rates down to nothing. The spreads on portfolios and securities are generating a huge amount of net interest income,” Broadpoint Gleacher Securities Group (BPSG.O: Quote,Profile, Research, Stock Buzz) Chief Executive Lee Fensterstock said at the Summit. “That will enable them to resolve some of their commercial real estate positions.”
The commercial real estate problem also pales in size next to the previous waves of mortgage, leveraged loan, credit card and other consumer loan losses.
FBR Capital Markets analyst Paul Miller, while generally negative on banks, on Wednesday played down the danger of commercial real estate losses.
Dont tell these guys:
http://www.stamfordadvocate.com/ci_13816835