Some yearend bank deals give new meaning to the abbreviations M&A and CRE: More Anxiety about Crummy Real Estate loans.
The banks that agreed to buy Wilmington Trust Corp., Marshall & Ilsley Corp. and Whitney Holding Corp. took surprisingly big markdowns on their loans to home builders, apartment owners, office property developers and other commercial real estate borrowers.
Before they made their deals, Wilmington Trust, M&I and Whitney had been making the case that they were containing their construction and commercial mortgage losses.
Investors and analysts had been hoping these lenders and their competitors were getting a handle on problem loans to businesses by devaluing them and modifying terms. The markdowns suggest otherwise, experts say.
"It seems like there are further markdowns to be taken," said Tom Mitchell, an analyst with Miller Tabak & Co. LLC. "Every management team wants you to believe that they've taken a meat cleaver" to the value of their bad loans.
The writedowns cast new doubts on the health of other regional banks in the Midwest and Southeast with large portfolios of outstanding real estate-related business loans, like Huntington Bancshares Inc. of Columbus, Ohio, and Regions Financial Corp. in Birmingham, Ala., market watchers said.
One buyer, M&T Bank Corp., estimates Wilmington could still lose another $534 million in construction loans after booking $216 million on bad loans to retirement home developers and other businesses since the beginning of 2008. New Orleans-based Whitney, meanwhile, could lose another $156 million, or 15%, of its construction book, according to the estimates of its buyer, Hancock Holding Co. of Gulfport, Miss.
To be sure, nobody is panicking just yet about a pending meltdown in construction lending and mortgages. These loss projections are just that: projections. They haven't happened yet. Healthy banks have huge incentives to write down as many questionable loans as possible when buying troubled banks.
