Fitch on Tuesday announced an “expanded review” of the exposure of major US banks to commercial real estate, a favourite topic here on FT Alphaville.
According to the rating agency, “the performance metrics of commercial real estate, an area with a significant risk exposure for the majority of Fitch’s U.S. bank universe, continues to deteriorate at an unprecedented pace.”
Here are the more substantive bits from the press release, any emphasis or links FT Alphaville’s:
While CRE loans, excluding the more problematic construction and development portfolios, represent more than 125% of total equity for the 20 largest banks rated by Fitch, the risk is even higher for banks with less than $20 billion in assets, as average CRE exposure represents more than 200% of total equity for these institutions.
As reported last week by Fitch’s commercial mortgage backed security (CMBS) group, CMBS loan delinquencies surpassed 3% in July and are expected to increase more than 60% by year end to at least 5%. Further, roll rates from 30 to 60 days have increased to over 50% in 2009 and resolutions continue to slow. “The same factors that are placing pressure on CMBS transactions are increasing pressure on the performance of bank and thrift-held CRE portfolios” according to Thomas Abruzzo, Managing Director and co-head of Fitch’s North America Financial Institutions group.
The stress is clearly not confined to CMBS activity. In commenting on the U.S. bank universe, Abruzzo went on to state, “large banking companies have seen levels of early-stage delinquencies, more severe delinquencies and non-accrual loans, as well as charge-offs increase markedly across their CRE and construction and development portfolios. While the 10%+ of construction and development loans in non-accrual is greatly attributed to residential construction activity, the 5% of the CRE book in non-accrual status evidences more widespread problems.”
Fitch currently assigns Negative Outlooks to nearly half of the 20 largest U.S. bank and thrift institutions it rates. As Fitch has indicated in its recent bank rating actions, a major concern contributing to these Negative Outlooks is the potential for further deterioration in the institutions’ loan portfolios with a specific focus on CRE exposures.
Related links:
Tishman faces office downturn – WSJ
“Losses on UK commercial real estate could equal subprime” – FT Alphaville
US banks warn on commercial property – FT