Based on all publicly available data on banks for the third quarter ended Sept. 30, 2011, Invictus said that, absent corrective action to raise capital or merge, the 758 banks it identified are unlikely to remain viable primarily due to the weak recovery, which could trigger a new wave of loan defaults, according to the consulting firm. Approximately 200 of these banks are subsidiaries of publicly traded bank holding companies.

After stress-testing all FDIC-insured banks using its own proprietary model, Invictus found 758 banks with total assets of around $440 billion, or roughly $580 million on average, at risk.

That number of banks is nearly double the total number of banks that failed in past three years. Over the past three years, 389 banks and thrifts failed, including 90 in 2011, according to FDIC figures.

“While any possibility of a bank failure is serious, what makes this situation even more dire is that the demise of any of these banks would adversely affect their local communities, especially smaller business people and those seeking to buy or improve their homes,” said Kamal Mustafa, chairman and CEO of Invictus. “Compounding the problem is the fact that larger national banks are starting to close down their smaller branches, so these communities will have even fewer lending resources.”

Invictus’ proprietary model digs into the vintage of assets by type of loan, so the model can judge when loans were placed on the books and predict the impact on earnings as loans roll off.

“As old assets roll off, they are not being replaced at the same pace by new assets coming on, which puts bank earnings and capital construction under a great deal of pressure,” explained Mustafa.

The state of Florida has the largest number (72) and highest share (31%) of vulnerable banks among its institutions. Those banks have average assets of $539 million each and represent almost 25% of Florida’s total bank assets of $158 billion.

Other states with the largest number of most vulnerable banks include Illinois (69), Georgia (66), Minnesota (37) Missouri (33) and Tennessee (31). The only states with no banks rated at risk by Invictus are Alaska, Hawaii, New Hampshire and South Dakota.  Mustafa says that the absence of a significant economic recovery will trigger these potential bank failures.

“Borrowers will simply run out of time and resources,” he said. “The banks’ earnings will be insufficient to sustain capital and many banks will be unable to raise enough capital. We believe there needs to be significant capital-raising for those that can, or they must engage in mergers and acquisitions.”

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Digested From “National Apartment Vacancy to Dip Down to 5 Percent by Year End”
GlobeSt.com (01/17/12) by Natalie Dolce

The U.S. apartment sector endured last summer’s economic doldrums to record robust absorption gains and higher occupancy rates, according to Marcus & Millichap’s 2012 National Apartment Report. The report says that metro areas with high barriers to entry are experiencing especially tight supply conditions. “Foreclosures in the single-family market, the inability of most Americans to meet mortgage financing requirements, and households choosing rental housing for lifestyle reasons or employment mobility contributed to a net rise in apartments,” the report states. Hessam Nadji, managing director of research and advisory services at the firm, expects demand for rental housing will remain strong this year as demographic trends combine with changing consumer behavior. He further notes that homeownership rates have fallen dramatically since reaching their apex of 69.2 percent in 2004, adding, “The most recent readings place homeownership at 66.3 percent, and this sharp d ecline has significantly added to rental housing demand. As a result, rental housing will remain a favored choice for the coming year.” In the absence of any unforeseen shocks to the global financial markets, a number of lenders will continue to finance apartment developments and acquisitions in 2012 while interest rates remain at historically low levels, forecasts William Hughes, senior vice president and managing director of Marcus & Millichap Capital. He concludes, “Fannie Mae and Freddie Mac will remain the chief suppliers of apartment loans in an increasingly crowded field of providers.”

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Happy Thursday!

“Social housing is the No. 1 priority when it comes to support economic growth, ensure social stability and bring down average housing prices, as far as the government is concerned,” said UBS analysts Tao Wang and Harrison Hu in a recent note.