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It's time to really give banks a closer look

Four months ago this column appeared with the headline: It's time to give banks a closer look.

By Robert Trigaux, Times Business Editor
Published February 10, 2008


Four months ago this column appeared with the headline: It's time to give banks a closer look.

Well, put away the binoculars and grab the microscope. Bank woes are on the rise. Let's magnify and inspect what has been largely out of sight to the public.

Less than two weeks ago, John C. Dugan, one of the nation's top bank regulators, issued a warning in person to the Florida Bankers Association. Way too many banks made too many commercial real estate loans - Dugan did not mean mortgages to home buyers, but he did mean construction loans to homebuilders - and that concentration of lending is starting to show some cracks.

Nonperforming loans in Florida that a year ago were below the U.S. average have spiked to 3.34 percent, noted Dugan, who runs the U.S. Treasury Department unit known as the Comptroller of the Currency. "That's 70 percent higher than the national average and an almost eight-fold increase in one year."

When regulators say eight-fold about bad lending, pay attention.

Clean up your balance sheets or bank examiners will clean them up for you, Dugan said. "And yes," he added, "there will be an increase in bank failures."

Such gloom might be written off as the hand wringing of a Washington bureaucrat. Yet in the same week, a veteran bank analyst made Dugan sound like a member of the Optimist's Club.

Between 50 and 150 banks nationwide - as many as one in 57 - could fail by early 2010, as losses from troubled real estate loans mount and regulators crack down on lenders that take too much risk. So said RBC Capital Markets analyst Gerard Cassidy in a Reuters news service interview. The first banks to fail? Mostly smaller ones, he said, squeezed by a lack of capital or poor access to the markets.

Let's take a breather here. Florida banks are not about to topple. Most are in fine or at least reasonable shape. Those that are reporting losses now or upticks in lending woes will most likely deal with their problems and be smarter for the experience.

Still, the latest round of quarterly bank earnings is sobering. Consider a sample of recent comments from banks prominent in this state:

- "Our credit deterioration was the big story for both the industry and for Regions Financial," said Al Yother, Regions' chief financial officer.

- "I wish I could find words to describe the environment that have not been used before," said Richard Anthony, Synovus CEO. "But all of the bankers are talking about this difficult credit environment and the challenges we face as an industry."

- "Today, we've got 14 relationships with exposure above $10-million on our internal watch list," said South Financial parent of Mercantile Bank chief credit and risk officer Lynn Harton. "Of those 14, 13 are in Florida."

Florida's last bank to fail was Tallahassee's Guaranty National in 2004. Before that it was Net 1st National in Boca Raton and Miami's Hamilton Bank in 2002.

You'd have to go back to the late 1980s and early '90s to find the last time banks and savings and loans in Florida seemed to collapse like dominoes. But the reason is familiar: too much lending to troubled real estate.

Today's bank problems are unlikely to get so out of hand. But just the same, keep your microscopes handy.

Robert Trigaux can be reached at

[Last modified February 8, 2008, 21:50:59]

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