Banking companies are trying to get ahead of problems in commercial real estate, a lending segment expected to be the next shoe to drop in the credit crisis.

It might be too late.

"All this review stuff is fine," said Jeff Davis, the director of research at Howe Barnes Hoefer & Arnett Inc. But "they reviewed residential [construction and development portfolios] in the first quarter of 2007, and it didn't prevent it from becoming a disaster."

Companies with sizable CRE books — like Huntington Bancshares Inc. and M&T Bank Corp. — said in their first-quarter reports last month that they have been reviewing their CRE portfolios to brace for problems their borrowers might encounter as the recession deepens. Other companies — like KeyCorp and Synovus Financial Corp. — have started to restructure some of their most stressed CRE loans.

But reviewing and restructuring troubled loans may not be enough to avert steep losses in their CRE books, analysts said.

Though portfolio reviews help banks decide whether to demand more equity from borrowers, extend maturities or take other actions to work out the credits, reviews only go far, they said.

Refinancing is no silver bullet either, said Maclovio Pina, an analyst at Morningstar Inc., because about 30% of restructured loans tend to go bad.

"It's not always like the best strategy because … people tend to redefault on restructured loans," Pina said. "It is not something that will cure all of the bad news on a loan that has gone wrong."

Banks typically classify CRE loans as credits to retailers, hotels, apartment buildings, office buildings or other businesses that tend to operate in rented space.

Observers have been keeping tabs on banks' CRE portfolios since the residential mortgage market meltdown, fearing that commercial realty would be the next problem area amid rising unemployment and declining consumer spending.

Though banks' CRE books showed erosion in the first quarter, the market has not fallen off a cliff. KBW Inc.'s Keefe, Bruyette & Woods Inc. said the average ratio of nonperforming CRE loans to total loans at regional banks it covers rose 111 basis points to 2.54% in the quarter. This was a sharp rise but not a devastating one.

"Right now, they're holding up. I've been waiting for a couple quarters now to see some evidence of deterioration," said Richard Weiss, an analyst at Janney Montgomery Scott LLC. "I always kind of view [CRE portfolios] more as a battleship. It takes them a long time to turn around when they go bad. But it takes a lot to sink them, too."

Analyst Anthony Davis at Stifel, Nicolaus & Co. said commercial real estate loans tend to have better underwriting than home mortgages because banking companies tightened standards after taking big CRE losses in the recession of the early 1990s.

These loans also tend to be more conservative than home loans, requiring more money down from the borrower, he said. Also, most CRE loans are paid off at maturity with the proceeds of new loans. So the real problems will not emerge until most banking companies' CRE loans start coming due this year, analysts said.

This has not stopped banking companies with large CRE books from trying to get ahead of the issue, however.

KeyCorp, for one, said in a call with analysts that it has already started restructuring loans to retailers. About 15.7% of the Cleveland company's $18.3 billion in CRE credits are extended to retailers. Jeffrey Weeden, Key's chief financial officer, said the slowdown in consumer spending has begun taking a toll on these borrowers.

"We are working with our customers in this segment, as their projects come to completion, to find solutions for their permanent financing needs," Weeden said. "In a number of cases where permanent financing is simply not currently available in the market, we are structuring interim financing on our balance sheet and obtaining additional equity from the developer." KeyCorp's CRE chargeoffs rose about 36%, to about $125 million, in the first quarter. Nonperforming CRE loans rose 46%, to $704 million.

Columbus, Ga.-based Synovus, with about 44% of its $27.7 billion loan book in CRE, has also turned to restructuring in dealing with a delinquent credit to a hotel and resort. In a call last month, Synovus president and chief operating officer Fred Green told analysts the company hopes to re-collect payments on that loan.

"The plans are to sell certain nonoperating assets — there would be a lot of activity associated with that sale right now that should allow the debt to come down at the prescribed amount," he said. "We are the lead bank in a group of banks on this particular [loan], and we have worked with our bank partners to create a structure that we think is beneficial to us and allows the company to execute their plan as well."

CRE loans account for 82% of Synovus' $1.44 billion in nonperforming loans, $519 million more than in the preceding quarter.

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