Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Most Recent Stories

BANK M&A ABOUT TO SURGE?

Credit Insights is out with a research report claiming that bank M&A could pick up as the health of the banking sector improves.  CreditSights says:

“There is an obvious acquisition advantage goes for those banks which no longer have TARP funding”

Potential acquirers are: JPMorgan Chase,U.S. Bancorp, and BB&T, Morgan Stanley and Goldman Sachs.

Potential targets include: SunTrust, Regions, Fifth Third, Key, Comerica, M&I, Huntington, First Horizon, Zions, and Synovus.

“In general, we view the more “critical mass” regional bank franchises such as SunTrust, Regions, and Fifth Third as being more attractive than smaller targets, despite their identified capital need and well-known credit quality issues.”

The Wall Street Journal, however, believes many of these firms could be bogged down for years by their massive commercial real estate holdings.  Specifically:

Commercial real estate is going to be a drawn-out problem for banks. How do investors sniff out which lenders are most exposed?

One possible first step is to compare the amount of commercial-real-estate exposure at a bank with its tangible common equity. Citigroup analysts recently did this, coming up with a list showing high numbers for certain regional banks. Zions Bancorporation’s commercial real estate was equivalent to just over 650% of its TCE in the first quarter, according to Citi. It was more than 580% at Huntington Bancshares.


reel

However, the stocks of both banks already reflect considerable fears about their loan portfolios. They are both down more than 40% year to date, while both trade well below book value.

M&T Bank, of Buffalo, N.Y., has commercial real estate that is equivalent to more than 600% of TCE. Yet its stock has held up well this year.

It trades above 1.8 times tangible book and, unlike many peers, it has continues to pay a hefty dividend.

One of the reasons M&T has retained favor is the belief that it underwrote relatively conservative loans during the boom. Many believe the bank’s reserves are sufficient for any losses on its $18.8 billion commercial-property book, which contains significant exposure to the New York metro area.

But the bank doesn’t break out reserve coverage for commercial real estate. What’s more, in 2007, M&T made a $300 million investment in a commercial-real-estate entity called Bayview Lending Group, which is generating losses for the bank. The timing of the investment, near the top of the market, suggests M&T also was capable of getting carried away.

I believe it’s unlikely that any sort of M&A surge will occur for quite some time in the banking sector.  Despite what the government and first quarter earnings tell us it’s quite clear that banks are still hoarding cash.  Vast credit improvement is certainly helping the banking sector, but consumer lending is still very weak and showing no signs of a pick-up.  Banks are sitting on record amounts of freshly minted government paper, but as the commercial real estate market implodes, credit card delinquencies rise, asset backed commercial paper market collapses, treasury yields surge and lending standards jump the banks are having a hard time finding suitable uses for their cash besides fighting for their own survival.  The banking sector is still far from healthy enough to go on spending sprees.

casha

Sources: Credit Sights & WSJ

2 comments
  1. Boston Real Estate

    My conclusions are not changing. While the last few data points are above trend, there is no break in the overall downward slope. We should expect a season spike this time of year, but what the CAR is raving about is a really weak seller’s season. In none of the zip codes is there anything but noise around the long term trend.

    Great article,

    Best,

    Jim
    https://www.bostoncondos.firstbostonrealty.com/

  2. Cullen Roche

    Jim, thanks for commenting! You’ll be interested in my last post. I hope you’ll stick around and continue to update us on what you’re seeing. I always prefer to hear from people in the trenches rather than talking heads with an agenda to push….

Comments are closed.