Tuesday, May 19, 2009

CRE Losses at Banks

Everyone is waiting for this wave to hit, but the WSJ took a different look at it today and plugged the data from 900 or so regionals and locals into the "Stress Tests" previously performed on the 19 largest financial institutions.

The results were an expected $100 billion loss, and a possible $200 billion loss. That result is in line with some of the projections you see from other sources such as Goldman or Moody's, based on different kinds of analyses (Maturity schedules, credit quality, etc.). However, if you're like me and think the "Stress Test" were a joke, then you're also probably like me and think that Goldman and Moody's analyses were jokes as well. Nonetheless, an interesting take...

Total losses at those banks could surpass $200 billion over that period, according to the Journal's analysis, which utilized the same worst-case scenario the federal government used in its recent stress tests of 19 large banks. Under that scenario, more than 600 small and midsize banks could see their capital shrink to levels that usually are considered worrisome by federal regulators. The potential losses could exceed revenue over that period at nearly all the banks analyzed by the Journal.

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