Big banks are taking hits from commercial real estate

livemint.com:

Commercial real estate is often talked about as a problem for smaller banks, but big banks are emerging with the most evident scars so far. That isn’t how the stock market has behaved. Declining values for offices, apartment complexes or other commercial properties have been a factor weighing on the shares of all banks, but particularly smaller ones.

The KBW Regional Banking Index is down around 12% this year, while the KBW Nasdaq Bank Index of larger lenders is up nearly 9%. Regional, community and smaller banks do represent more than a quarter of commercial real estate and multifamily property debt in the U.S., which is more than twice the share for the top 25 biggest banks, according to a recent Moody’s analysis. Not all so-called CRE loans are created equal, though.

Such things as credit-card loans are pretty standardized, but real estate is fuzzier. Is it a new-construction loan or one on an existing building? Is the borrower the property’s main tenant or is it looking to lease the building out? Is it an office tower, a medical facility, a strip mall or a warehouse? Is it a big loan split between banks, or a smaller one held by one bank? And so on. So it is important to drill down into performance, not just exposure.

Based on available data for the banking system, figures recently compiled by S&P Global Market Intelligence from regulatory filings for the first quarter are showing a significant disparity in the percentage of loans marked as either delinquent or nonaccrual, which the bank doesn’t expect to pay off in full at maturity. The trouble is at big banks and their loans to properties that are intended to be leased to third parties. For CRE loans involving properties that aren’t owner-occupied and are held by