Report: Regional Banks Most Exposed to CRE

Regional banks are the most exposed to a slide in commercial real estate values and have been hurt by the Treasury's recent decision not to buy troubled mortgage assets under the 'TARP' program, according to a new report issued by Citigroup Global Markets. CGM analyst Keith Horowitz says, "Spreads on the CMBX index have blown out in recent days in part due to Treasury Secretary Paulson's statements that TARP will not be used to buy troubled assets, which had helped serve as a price floor on these assets." The CMBX is a tradable instrument based on 25 tranches of commercial mortgage-backed securities, each with different credit ratings. Mr. Horowitz says commercial real estate losses are high but not as bad as in the early 1990s during the last banking crisis. The CRE market has been hurt by the deteriorating economy: the downturn reduces the need for businesses -- office, retail, industrial -- to lease space. Citi says the four banks with the highest commercial delinquency/non-accrual ratios include: Fifth Third Bancorp, Huntington Bancshares, National City, and Regions Financial. TARP stands for 'Troubled Asset Relief Program.'