From the Home News Tribune:
Banks on shaky ground
By JASON METHOD
When Kara Homes filed for bankruptcy this month, Amboy National Bank of Old Bridge was listed as the largest creditor with $58.2 million in loans.
When local real estate mogul Solomon Dwek’s $400 million empire was frozen by a judge following charges of bank fraud, Amboy was again the largest creditor — for $49.7 million.
Just as Amboy has been surprised by the loans gone bad, a real estate market in decline could spell financial trouble for other local banks and thrifts that have lent heavily for housing developments and commercial real estate, bank analysts and federal regulators say.
Industry analysts recall the savings-and-loan crisis from the late 1980s and worry that a new round of bank bloodletting could start if a once-robust real-estate market founders.
“It’s a disaster waiting to happen out there,” said Gerard Cassidy, bank analyst for RBC Capital Markets, an international firm based in Toronto. “We’ve seen this movie before, and it doesn’t end very well.”
If another crisis hits the financial community, small-time bank customers would likely be hurt if credit becomes tight or banks fail outright. Tight credit especially impairs owners of small businesses, who look for loans to finish a job or cover expenses during lean times.
Regulators are proposing new guidelines meant to warn banks about overlending. The guidelines would recommend that banks not lend more than three times their capital for all commercial real estate combined.
…
In New Jersey, 47 percent of the 95 national- and state-chartered banks are already over the proposed guideline, a Gannett New Jersey analysis of federal data showed.Federal bank regulators say they are not overly worried about bank failures.
Bank regulations are much stronger since the 1980s, and banks are much less inclined to grant speculative loans, which had been a major cause of the S&L crisis.
Doesn’t say much for the people running the bank.
If anyone has money in Amboy National Bank of Old Bridge, you better do a bank run and place it somewhere else.
Commerce Bank is a good bank, and they are all over NJ.
But, with that said, once this RE bubble is in full swing, its going to really hit the banking sector, which could lead to a tough recession.
SAS
oh yeah, you better do that bank run asap too.
“Federal bank regulators say they are not overly worried about bank failures.”
I’m glad the regulators aren’t overly worried, but I’m rather concerned that they’re not worried enough. That could be a problem.
Lindsey,
FDIC doesn’t mean anything. They can’t cover their own butts let alone anyone else.
SAS
from Asbury Park Press
“Vincent D’Alessandro, VP of Shore Community Bank in Toms River, said the real estate market downturn has put more pressure on banks to beat last year’s earnings. ‘I know there are loan officers out there making loans because they have budgets to meet and job security issues,’ D’Alessandro said. ‘Banks get focused on hitting numbers, making sure their loan officers are hitting their numbers — and you set yourself up for making bad loans.’”
“Shore Community has $96.8 million in real estate loans to developers and businesses, about five times the bank’s capital. D’Alessandro said the bank is confident it has made wise loan decisions, but nonetheless it is tightening requirements for new borrowers. Unfortunately, D’Alessandro said, that hurts little guys.”
“‘It’s all about a credit crunch right now,’ D’Alessandro said. ‘You hate to say that, but banks like us will have to tighten the screws; the guy who wants to develop his house, or the roofer that needs some funding, we’ll be looking at that much more carefully. Some people may have to borrow for their living expenses, but those are the people you have to cut off.’”
http://www.app.com/apps/pbcs.dll/article?AID=/20061015/NEWS/610150396/1001/OPINION