Headlines – Week of January 9, 2011

January 17, 2011

Regulators close banks in Florida, Arizona

Last week regulators closed the first two banks of 2011 after 157 banks were shuttered in 2010. 2010 had the most closures since the savings-and-loan crisis two decades ago. The 157 bank closures nationwide last year topped the 140 shuttered in 2009.

The Federal Deposit Insurance Corp. took over First Commercial Bank of Florida, based in Orlando, with $598.5 million in assets and $529.6 million in deposits; and Legacy Bank, based in Scottsdale, Ariz., with $150.6 million in assets and $125.9 million in deposits.

First Southern Bank, based in Boca Raton, agreed to assume the assets and deposits of First Commercial Bank of Florida. Enterprise Bank & Trust, based in St. Louis, is assuming the assets and deposits of Legacy Bank.

In addition, the FDIC and First Southern Bank agreed to share losses on $484.3 million of First Commercial Bank of Florida’s loans and other assets. The agency and Enterprise Bank & Trust are sharing losses on $119.8 million of Legacy Bank’s assets.

The failure of First Commercial Bank of Florida is expected to cost the deposit insurance fund $78 million; that of Legacy Bank is expected to cost $27.9 million.

Florida has been the state hardest hit by bank closures, with 29 failing in the state last year. Other states that have seen large numbers of failures are California and Illinois.

The 2009 failures cost the insurance fund about $36 billion. The failures last year cost around $21 billion, a lower price tag because the banks that failed in 2010 were on average smaller. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing number of bank failures has sapped billions of dollars out of the deposit insurance fund. It fell into the red in 2009, and its deficit stood at $8 billion as of Sept. 30.

The number of banks on the FDIC’s confidential “problem” list jumped to 860 in the third quarter from 829 three months earlier. The 860 troubled banks is the highest number since 1993, during the savings-and-loan crisis.

The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.

CMBS Modifications Hit All-Time High

According to an article on GlobeSt.com, the default rate on vintage CMBS may have reached an all-time record level in December of last year, but without special servicers stepping up the pace on loan modifications, it could have been much worse.  GlobeSt.com was quoting a report issued by Standard & Poor’s Ratings Services entitled “US CMBS Loan Modifications Reached An All-Time High In 2010.”

S&P’s view is that loan extensions have relieved some of the stress in the property markets over the past few years. Although they believe the number of modifications will remain high in 2011, the firm also expects liquidations to increase as a percentage of total resolutions as market conditions improve.

The report notes that 354 loans with a principal balance of $15.6 billion were modified during the first 11 months of last year. That’s well above the 216 loans with a principal balance of $7.06 billion that were modified in all of 2009. Ninety-six percent of all the loan modifications since 2000 occurred during this 23 -month period, according to the report.

The most commonly modified loans are backed by retail properties, representing 49.3% of total modifications by principal balance. However, when loans from the General Growth Properties portfolio are taken out of the equation, retail’s share drops by more than half to 22.6% and office takes first place with 30.8% of modifications by principal balance. Loans backed by lodging properties are the next most common at 19.3%, followed by multifamily with 16.9%.

Similarly, retail has the highest modification rate – i.e. percentage of retail modifications relative to retail’s outstanding balance – at 7%, but that drops to 2.1% if General Growth is excluded. That leaves the lodging sector with the highest percentage of modifications at 5.6%.

According to Trepp data, properties in the lodging sector had a delinquency rate ranked second at 14.31% in December and could be among the first to reap the most benefits from modifications according to S&P.  The firm believes the fundamentals in the lodging property are rapidly improving, and believe that higher liquidation values may be more likely during the post-modification era.

The 2000-vintage CMBS has the highest modification rate of any vintage at 9%, as well as the highest delinquency rate at 36.9%.   2007 CMBS loans account for 29% of modified loans by principal balance, along with nearly one-third of total CMBS outstanding.  In 2011 and 2012 a large amount of the five-year term loans originated in 2006 and 2007 vintage years will mature and the firm expects the percentage of modified loans to the outstanding balance of these two years to increase substantially.

Full Article

Posted by Scott R. Lodde

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