Commercial real estate and small banks

August 18, 2009

A couple more data points for the commercial real estate and the banks that plowed into the sector during the go-go years earlier this decade. It’s a mess and one that smaller banks and the FDIC will be left to clean up.

Fitch Ratings says banks with less than $20 billion in assets on average have a commercial real estate loan exposure that represents more than 200% of total equity. For comparison, the exposure of the 20 largest banks rated by the firm, is more than 125%. and this doesn’t even include the toxic construction and development loans that are sinking fast.

Fitch is expanding its review of such banks to see how they would perform under stress and whether current bank ratings are justified. Delinquencies on loans packaged in commercial mortgage-backed securities rose above 3% in July and Fitch expects them to reach “at least” 5% by year end.

, and this isn’t even including the toxic construction and development loans,

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