Tuesday, February 17, 2009

Banks closer to the brink

Crain's:
Local banks' cushion to absorb losses is shrinking fast, pushing a growing number to the point where they must raise additional capital or face the prospect of failure.

At the end of 2008, 16 local banks had bad loans on their books that equaled or exceeded their loan reserves plus their equity, up from just three banks last spring, according to Virginia-based data provider SNL Financial. Many more were in an only slightly less precarious position, including Broadway Bank, owned by the family of Illinois Treasurer Alexi Giannoulias.

The bank in the worst condition, according to this bad-loans-to-capital ratio, is Heritage Community Bank of south suburban Glenwood. Heritage is three months past the deadline in an October regulatory order to raise capital. One deal to infuse the bank with capital fell through, and CEO John Saphir says Heritage is in discussions with another potential investor "that will support the bank and its loan portfolio." He declines to identify the investor.

One local bank, National Bank of Commerce in west suburban Berkeley, already has failed. Observers predict many more will follow as the vicious real estate meltdown overwhelms local lenders that concentrated much of their commercial lending on homebuilders.

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