Monday, January 14, 2013

Banking Sector Getting Healthier but Still Burdened by Troubled Loans



Michael Bull
ATLANTA, GA (Jan. 14, 2013) – The U.S. banking industry has recovered steadily from its doldrums during the Great Recession, but lending institutions are still faced with a significant amount of troubled real-estate loans.

That was the view of a panel of experts on the most recent episode of the “Commercial Real Estate Show” radio program, hosted by Michael Bull. The episode took an enlightening look at the banking sector and outlined strategies for banks and other lenders faced with problem loans.

As of September 2012, 91 percent of U.S. banks were profitable, according to Christopher Marinac, managing principal and director of research for FIG Partners. “That’s a very positive shift and certainly a dramatic difference from where the industry was sitting in 2009, 2010 and early 2011,” Marinac said.

Christopher Marinac
Furthermore, 51 banks failed in 2012, a notable decline from the preceding years, Marinac added. He predicted that number to drop to approximately 30 this year.

Still, “everything’s relative,” Marinac said. “If you go back seven years, the industry was making 14 to 15 percent returns on equity. That no longer is the case. We’re closer to 8 or 9 percent, as a general rule.”

For the most part, the larger banks are the most profitable, while community banks are more likely to struggle, according to Marinac.

Joe Briner
Despite the steadily improving conditions, the banking industry has “a long way to go” in working its way through troubled real-estate loans, said Rob Whitmire, a senior vice president at Bull Realty who oversees the firm’s Special Asset Services Group. “There is still a significant amount of problem loans out there that will have to be dealt with.”

Bankers and lenders saddled with troubled loans must be “be decisive and do [their] homework,” advised Joe Briner, a partner with GGG Partners, a firm that advises banks and financially distressed companies.

“The [lenders] that do it the best, they have a system,” Briner added. “They rapidly assess their expected recovery, and they implement their plans. They’re disciplined about how they do it.”

Marinac echoed Briner’s sentiments. “Timing is everything,” Marinac said. “[Banks’] first mistake [with troubled loans] is waiting, [kicking] the can down the road and [figuring] that they can have a better solution if they wait three to six months. I’ve never seen that work.”

Show host Bull agreed that banks are usually better suited to move quickly to sell foreclosed properties. “We’ve seen instances where we’ll bring a lender an offer for $5 million and two and a half years later, they’ll sell it for $3.5 million and have spent a lot of money on [the asset],” Bull said.

The entire episode on bank and servicer strategies is available for download at www.CREshow.com.

The next “Commercial Real Estate Show” will be available Jan. 17 and will examine the U.S. office market.

Contact:

Stephen Ursery
The Wilbert Group
Office: (404) 965-5026
Cell: (404) 405-2354

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