Zion lost $1 B on market cap when they announced those loans to 2 companies… the conference call is scheduled 2:30 pacific… if the losses are not systemic, but due to fraud and limited to few accounts… then regionals which also sold off will bounce back…
Mr. Simmons continued,
“The quarter’s credit results were marred by a $50 million charge-off, and a $10 million specific reserve established against the approximate remaining balance, arising from loans to two related companies in which apparent irregularities and misrepresentations were recently detected. Legal action has been initiated to pursue recovery of the amounts owed from guarantors of the credits. Excluding this loss, remaining net charge-offs were very benign at $6 million, or 4 basis points of average loans on an annualized basis.”
Don’t the regionals still have the “big” CRE issues that are slowly rolling in over the next few years? Maybe CRE has recovered sufficiently in some places, but not much in others.
Sure, there are banks, that have higher exposure. CRE is big, it includes everything from multi-family, hotels, medical centers, warehouse, industrial storage, to office buildings. We all know the issues with Office buildings and many banks have reserved sufficiently, because the issues are well-know. Some multi-family loans have issues because, the interest rates have gone up on those loans, and the rent is not covering the mortgage payments, these are dealt with as they come for refinance, not all are troubled loans, because the owners bring additional equity, or the bank is able to sell the property without much loss. The rest are doing good.
So, on a whole CRE loans are not an issue for the banks. Where the challenges are in private credit. There are two issues, one they are opaque and there is some fraud. How widespread the fraud is the bigger question.
Anything that deteriorates slowly can be handled by the banks with proper provisioning, the regulators get involved and monitor the situation and market prices the risk. The unknown’s cause market disruptions.
It is not that $60 m loan provisioning is the issue, but the banks was caught off-guard by the fraud on those type of loans and investors worrying how widespread the fraud is?
Regulators will wake-up and now make the banks go through, each and every loan, and take some aggressive provisions, even if they have to roll back later.
The below is Zion’s 3Q earnings slide that talks about CRE… If you see the total office loans are < 3% of total loans, and their average loan size are so small… they can absorb the loans easily..
Do not confuse insurance companies going down with the regional banks… insurance companies are going down for some time and last week move is in sympathy to $PGR.
