Regional Banks Writing Off Residential Construction Loans
Cleveland, Ohio-based Keycorp announced today that it may have to write off up to 1.3% of its entire loan portfolio due to weakness in new home values, according to a story on Businessweek.com. Other regional banks in the construction and home improvement loan market such as Wachovia, Fifth Third Bankcorp, and RegionsFinancial, could be similarly affected. Just three weeks ago Keycorp expected the losses to be less than .9% of its portfolio. The regional bank, which holds $97 billion in assets, also said in a recent SEC filing that losses on home improvement and education loans also contributed to its revised estimated losses.
While subprime mortgage woes have rocked banks over the past year, Keycorp's announcement is evidence that the general decline should affect the short term conventional loan market as well. The national home price index has declined 14.1% in the first quarter of 2008. The news -- and particularly the sudden change in estimates since Keycorp's earnings announcement in April -- signaled to some market analysts that an economic recovery in 2008 should not be expected. An R.W. Baird analyst is quoted as saying that "those hoping for a recovery in the second half of the year will be disappointed."
