Construction Loan Stats Belie Citigroup Forecast

The next shoe to drop. It seems that there are so many shoes dropping many will go barefoot.

Acquisition, Construction and Development loans (ADC), which account for approx 8.4 percent of all bank loans, are just below a 30 year peak. These loans are used by developers to buy land, put in infrastructure and construct housing or commercial and office space. It is pretty clear that there is severe weakness in this sector.

The real problem is that this is one of the cores of the US banking system. One could say these are the vanilla loans that banks have always made. Moreover, since they are concentrated in smaller banks, their fate is particularly interesting as it indicates that issues within the banking system go far deeper than previously thought.

It leaves one to really question how Citi (C) can say it has had one of its best quarters with commercial loans just starting to fail. Citi has given the pundits the all-clear sign. However the FDIC just increased its kitty to $500 billion from $50 billion. Does that tell you something? Does the FDIC have the funds to deal with the implosion of the commercial market?

Even if the FDIC has enough money (printed) to solve this upcoming issue, does it have scalability or manpower to deal with all of these problem banks? How many banks can they it realistically audit and control?

There are estimates floating around that U.S. banks risk having to charge-off an additional $84 billion of ADC loans between now and 2013, equal to a hit of nine percent of Tier 1 capital.

The question is do you really believe Citi that the worst is over?

Or is it just beginning?

Comments

[wobatus:]

Wow, the fright mongerers are out in force to try and talk the banks back down.

Mar 12 06:49 AM

[Sammy65:]

The worst is over the entire economy we are back too profiting, and finally making money again. Both the Nasdaq, and Dow are up tremendously. China, and Japan are becoming huge investors, and will continue to do so. They do not want their own economy tumbling. We buy most of our products from China, and Japan.

I'm finally glad too see OBAMA saved us!

Mar 12 06:59 AM

[Sammy65:]

The Bottom line is the market is profiting again!

Mar 12 07:06 AM

[Karl Regan:]

I agree our store is starting to turn profit. We had some very low progress during 08-09, but the economy is starting to rise. Gas prices are low which increases stock investments, lowering food prices, and is a huge impact.

Reading through the entire documentation above, I think he had investments and lost a huge amount of profit. I also think that he failed to get back into the stock market in a timely manner.

Mar 12 07:19 AM

[William Cowie:]

"Acquisition, Construction and Development loans (ADC), which account for approx 8.4 percent of all bank loans, are just below a 30 year peak."

What about these loans are just below a 30 year peak? Originations? Defaults? It isn't clear from that sentence. (The former would be great, obviously.)

Also, what is the source for these numbers? Thanks.

Mar 13 12:26 AM

[sooku:]

You just hate Citi because the CEO is a foreigner. Well the rest of us who see Citi doing all the right things, including having adequate capital for a downturn, will have the last laugh.

PROOF OF YOUR BIAS: for some reason you single out Citi, even though this affects every bank in the country. I'm done.

May 16 07:07 PM