Bank of America: Credit Weakness Spreading to Commercial Loans

In what is certainly no surprise in this corner, Bank of America Says Losses Shift to Commercial Loans.

Bank of America Corp., the biggest U.S. consumer bank, said credit weakness is spreading to commercial borrowers from residential customers and loan losses probably will deepen in the third quarter.

Home builders unable to repay their loans are contributing to deterioration among commercial borrowers, said Brian Moynihan, head of the global corporate and investment banking unit, at a New York conference today. More than half the Charlotte, North Carolina-based bank's $13.4 billion in loans to builders are considered troubled, 19 percent are not paying interest and losses are likely to mount, Moynihan said.

Bank of America's commercial loans were $335 billion as of June 30, and a home-builder portfolio that accounts for less than 4 percent "won't create major pain for us, but it's going up," he said. "It's not pretty."

It's Not Pretty

Indeed it's not pretty. Furthermore Bank of America (BAC) is mistaken if it thinks commercial woes will be contained to homebuilders. Even IF the woes remain limited to homebuilders, that would mean a likely $7+ billion in writeoffs.

Now what about financing of malls, retailers, office space, etc etc. A modest 10% writeoff across the board (highly likely IMO) would mean another $33 billion in writeoffs are coming from commercial real estate. And what about further consumer losses in credit cards and home equity lines?

The second tsunami (commercial real estate) has arrived even though losses from the first tsunami are still mounting.

Comments

[The Realist:]

Is this clown Moynihan serious? Does he not understand that writeoffs should not be compared to a total book of loans when that book is highly levered or is he treating us like we are retarded?

The question is whether the effect of a $5 - $7 billion writeoff against total capital is significant.

I just can't believe the stuff that comes out of these people's mouths.

2008 Sep 10 10:40 PM

[nyka:]

A pessimist is one who feels bad when he feels good for fear he'll feel worse when he feels better.

Anonymous

2008 Sep 11 06:39 PM

[Pensacola Bill:]

I HOPE YOU GO DOWN THE TUBE, LIKE YOU DO TO YOUR BEST CUSTOMERS.
28%

2008 Sep 16 03:21 PM