Interesting read on why commercial real estate and industrial loans will not cause havoc on Wall St. I think alot of people don't understand this. These loans are going to cause havoc on main street much more than Wall St. because it was the mid sized regional and local banks that took over this market. It was often times less lucrative and so Wall St. wasn't interested. Many regional banks got way overexposed and that is where the problems are going to be. The one exception could be Deutsche Bank which may have more exposure to commercial real estate than some of the other big banks.
From Costar. Thanks goes to Pete.
If the current economic malaise brings down any of the largest banks in the country, commercial real estate likely WON'T be the culprit. Office, industrial and retail properties specifically are even less likely to bring down the nation's top banks.
The 19 largest U.S. banks, which account for 70% of the bank holdings of this country, were the focus of the U.S. Federal Reserve 'stress tests' results released this past week. Under the worst case scenarios envisioned for the current recession, commercial real estate losses would cost those banks $53 billion in losses this year and next.
While that is a lot of money, it still pales in comparison with residential loan losses, which still would make up the bulk of the projected losses, $185.5 billion. In fact, exposure to commercial real estate loans falls way down the line in terms of producing projected losses for banks. Trading and counterparty investments would lose $99 billion; consumer loans $83.7 billion; credit card loans $82.4 billion; business loans, $60.1 billion; only then comes commercial real estate.