Testifying before the House Subcommittee on Oversight and Investigations, Jon D. Greenlee, Associate Director of the Federal Reserve’s Division of Bank Supervision and Regulation, warned that banks continue to face significant challenges from rising delinquencies on commercial real estate (CRE) loans.
In his November 30 statement, Greenlee said, “Credit losses at banking organizations continue to rise, and banks face risks of sizable additional credit losses given the outlook for production and employment.” The level of delinquent commercial real estate loans in bank portfolios had almost doubled at the end of June, he said. Even as banks set aside funds to cover loan losses, poor loan quality, subpar earnings, and uncertainty about future conditions have raised questions about capital adequacy at some institutions, Greenlee said.
In related news, GlobeSt.com reports that industry insiders expect commercial mortgage-backed securities (CMBS) to receive more support from the Treasury’s Term Asset-Backed Securities Loan Facility (TALF). Even though a few deals may be moving through the securitization pipeline backed entirely by private investment, including a Bank of America Corp. $460-million deal backed by office and industrial properties in Florida—with a $47-million triple-B class tranche no less—these are still exceptions in a very difficult market and do not foretell a reemergence of the multi-borrower conduit CMBS transaction platform. According to GlobeSt.com, “Some investment banks are starting to cautiously rebuild origination platforms, [an investment banker] said—but issues coming to market are more than likely to remain in the category of special situation one-off transactions and supported by TALF.”
The bottom line for investors is that financial stocks have enjoyed a nice bounce back from the March 2009 lows now that the global financial system has stabilized. However, due to continued losses from commercial real estate loans and consumer debt, banks will be hard pressed to generate profits that would create more upside potential in their stock prices.
Fed Continues to Issue Alerts on CRE
Posted by Gregg Killoren on December 1, 2009
Testifying before the House Subcommittee on Oversight and Investigations, Jon D. Greenlee, Associate Director of the Federal Reserve’s Division of Bank Supervision and Regulation, warned that banks continue to face significant challenges from rising delinquencies on commercial real estate (CRE) loans.
In his November 30 statement, Greenlee said, “Credit losses at banking organizations continue to rise, and banks face risks of sizable additional credit losses given the outlook for production and employment.” The level of delinquent commercial real estate loans in bank portfolios had almost doubled at the end of June, he said. Even as banks set aside funds to cover loan losses, poor loan quality, subpar earnings, and uncertainty about future conditions have raised questions about capital adequacy at some institutions, Greenlee said.
In related news, GlobeSt.com reports that industry insiders expect commercial mortgage-backed securities (CMBS) to receive more support from the Treasury’s Term Asset-Backed Securities Loan Facility (TALF). Even though a few deals may be moving through the securitization pipeline backed entirely by private investment, including a Bank of America Corp. $460-million deal backed by office and industrial properties in Florida—with a $47-million triple-B class tranche no less—these are still exceptions in a very difficult market and do not foretell a reemergence of the multi-borrower conduit CMBS transaction platform. According to GlobeSt.com, “Some investment banks are starting to cautiously rebuild origination platforms, [an investment banker] said—but issues coming to market are more than likely to remain in the category of special situation one-off transactions and supported by TALF.”
To view Jon D. Greenlee’s testimony, please click on the following link: Greenlee’s Testimony on Small Business Lending.
To view the article on CMBS at GlobeSt.com, please click on the following link: TALF Still Model for CMBS Despite New Deals.
The bottom line for investors is that financial stocks have enjoyed a nice bounce back from the March 2009 lows now that the global financial system has stabilized. However, due to continued losses from commercial real estate loans and consumer debt, banks will be hard pressed to generate profits that would create more upside potential in their stock prices.
This entry was posted on December 1, 2009 at 7:37 am and is filed under Banking, Commercial Mortgage-Backed Securities, Commercial Real Estate, Credit Crisis, Economy, Investing, Market Commentary, Mortgage-Backed Securities, TALF. Tagged: Banking, Commercial Mortgage-Backed Securities, Commercial Real Estate, Economy, Investing, Market Commentary, TALF, Term Asset-Backed Securities Loan Facility. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.