Monday, July 14, 2008

Construction Loan Troubles

"Wall Street is bracing for regional and small banks to fess up to large losses from their mounting volume of soured construction loans made primarily to home builders. ... Banks are also facing intensifying pressure from federal and state regulators to deal with the problem loans on their books. ... Banks have begun to dump bad construction and land loans at discounts, curtail new lending and halt construction projects that are under way to preserve capital. Some analysts even see a wave of bank failures as a possibility. ... Nearly one in three of the banks analyzed--or 2,182--had construction-loan portfolios that exceeded 100% of their total risk-based capital. ... Some community banks are bristling under the regulatory pressure. 'The federal government is being too reactionary,' says Damian Kassab, chief executive of Michigan-based Warren Bank, which reported that 47% of its construction loans are delinquent. 'They want to see it done as quickly as possible. I say "can't we just relax, take a deep breath and work with the borrowers",'", WSJ, 2 July 2008.

I await the OCC and Fed's applying similar pressure to TBTF banks. I have two ideas for Kassab: sell Warren Bank to Stephen Schwartzman. Alternatively, hire Moody's Yuri Yoshizawa to create a model for you which shows the loans aren't delinquent at all!

1 comment:

Danny said...


Was traveling over the weekend.

But I work for a boutique bank in NYC, so I get to watch the meltdown from ground zero. I'm in equity research, and I assure you, no one has a clue what is going on.