In September 2008, two weeks prior to the failure of Washington Mutual (now part of JPMorgan Chase
One of the major contributors to small bank failures is losses on commercial real estate loans. Smaller banks can't tap the capital markets to bolster their balance sheets as easily as a Wells Fargo or a Citi can.. That loss cycle hasn't peaked yet; in fact, according to a Congressional Oversight Panel report on commercial real estate losses published this month, "the most serious wave of commercial real estate difficulties is just now beginning." The data suggests that's no exaggeration.
Delinquencies have yet to peak
Credit rating agency Moody's
Another rating agency, Standard & Poor's, found that during the prior two recessions delinquencies on CMBS peaked 25 months and 15 months after the recession ended. Even using the lower of these figures and assuming this recession ended in June 2009, we'd then expect delinquencies to peak no earlier than the fourth quarter of this year.
Losses are yet to come -- at small and large banks
While smaller banks carry a proportionally higher exposure to commercial real estate loans; national and large regional banks (such as Zions Bancorp
The Fed is creating a new set of risks for investors -- Tim Hanson explains why it's time to get out now!
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Fool contributor Alex Dumortier loves macro-themed investing; he has no beneficial interest in any of the stocks mentioned in this article. Moody's is a Motley Fool Inside Value recommendation. Moody's is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a write puts position on Moody's. Try any of our Foolish newsletters today, free for 30 days. Motley Fool has a disclosure policy.
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