Wednesday, April 15, 2009
Regional Banks Starting to Crap Down Their Legs
The oft worried about Commercial Real Estate issues are finally starting to creep up. RJF last night, MBWM this morning and CBSH yesterday all announced their earnings would miss expectations and all cited CRE as one of the contributing factors to the weakness. CRE losses/NCOs are currently around 25bps for the largest 50 banks in the US and Non performing CRE loans are about 150bps. That compares to the early 90's peak of 212bps in NCOs and 600bps in NPAs respectively. Add to that C&I lending, really just a catch all investment class that has virtually no collateral, is currently at 100bps in NCOs and 100bps in NPAs compared to the prior peaks in the early 90's of 250bps/500bps respectively. You get the picture, painful, painful things ahead that I don't think people can look past until we are at least 50% of the way through the pain and this is really the first of maybe 8 quarters of pain. (RJF and MBWM are underperforming the SP500 financials index today by -1800bps and CBSH has underperformed by -1100bps yesterday and today).
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I have a few questions regarding the post. First what are NCO's, NPA's and C&I lending? Then the losses you state as bps, what are the basis points of?
ReplyDeleteDo you suggest to short these regional banks? None of the etf's include the smaller regional banks. I believe they only include the largest ones.
There has been strength recently in the real estate sector. I see this through the extreme weakness in SRS, the 2x inverse RE etf. I have been expecting this to turn based on the upcoming CRE crash. However I feel we may be early to the party and must wait for signs that the stocks are catching up to the expected performance. There also have been rumors of TARP money somehow getting to the troubled RE companies to keep them in business.