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Goldman rules are not for small lenders

Goldman Sachs’ second-quarter earnings, as jawdropping as the numbers were, did come with a few warning signs of trouble ahead. Most notably, the $1.2 billion in losses and write-downs the investment bank absorbed on commercial real estate loans, securities and related investments may be a harbinger of bad news to come from other financial firms.

Now it’s easy for a firm like Goldman, which generated blowout gains from trading stocks, bonds, currencies and commodities, to sweep its commercial real estate losses under the rug. But that’s not possible for small regional lenders stuck with loans to operators of half-empty strip-malls or quarter-filled offices.

That’s why short sellers are betting against shares of banks in the western United States that were big lenders to commercial property developers and landlords in California, Las Vegas, Oregon and Arizona. Those are all places where the recession is hitting the commercial real estate market hard.

For instance, Brad Golding, a portfolio manager with Christofferson, Robb & Co. who did well two years ago shorting small banks that loaded up on subprime home loans, says his fund has been shorting shares of Beverly Hills, California-based City National Corp., a bank with an affluent clientele and $4.7 billion in commercial loans.