The headline says it all: “Six More Banks Closed on Friday—Commercial Real Estate Loans Made Up 77 Percent of Banks’ Nonperforming Loans.”
April 15, 2011, was a “Black Friday” of sorts, with federal bank regulators closing six banks; this represented a serious increase in recent activity that was averaging two per week. Two of the banks were located in Alabama, two in Georgia, one in Mississippi, and one in Minnesota. Overall, Georgia has witnessed 60 bank failures since the current cycle began in September 2007.
Trepp’s analysis of the numbers is telling and distressing: commercial real estate loans accounted for $304 million of the banks’ combined distressed portfolio, or approximately 76 percent of total footings. Drilling down a little deeper, one sees:
- Nonperforming land and construction loans equaled $200 million, or 51 percent of total nonperforming loans;
- Nonperforming commercial mortgages equaled $104 million, or 25 percent of total nonperforming loans; and
- Nonperforming residential loans equaled $73 million (or 19 percent) and commercial and industrial (C&I) loans equaled $16 million (or 4 percent).
Key takeaways: First, in terms of real estate loans going bad and banks failing, we could still be looking at the tip of the iceberg and not the iceberg itself. According to the “Mortgage Lender Implode-O-Meter,” 387 mortgage lenders have “imploded” since late 2006; obviously, more pain and suffering lie ahead. Second, look how small a contribution to distress C&I loans have made; given the depth of the recession, one would have thought that more business loans would have gone bad than apparently have. And last, where there are distressed loans there are opportunities for well-capitalized investors. It may well be the time to recontact all those banks about buying distressed loans.