To the Editor:

I would be the first to agree that Georgia (and mainly Atlanta) has a number of problems and a number of banks with significant residential real estate lending issues. My company works with them every day.

My concern with the article "Search for 'Problems' Often Leads to Ga." [Sept. 10] is therefore more in the balance than in the basic conclusion.

First, the real estate fallout from Integrity will be much less than anticipated. Almost a third of its real estate portfolio was out of market and did not involve Atlanta or Georgia. Its closure hardly created a ripple in the market, because of the hard work of a large group of interested parties, not the least of which were the FDIC and the Georgia Department of Banking.

Second, the absorption numbers mentioned in the article are based on current absorption rates, which are virtually nonexistent everywhere (not just Atlanta), since there has been great uncertainty in the mortgage market (and without mortgages, houses don't get sold).

If you use normalized absorption rates from 2003-2004 (before the mortgage bubble really began), the absorption rates are much shorter. Metropolitan Atlanta absorption is based on the organic growth of the area — net population growth of approximately 100,000-plus annually. So far statistics indicate that this population growth is continuing, as is the inbound business relocation pipeline. Accordingly, the absorption figures, while mathematically correct, do not tell a complete story.

Third, it is now clear in the metropolitan Atlanta market that there are areas where residential real estate is doing rather remarkably well, and there are areas where it is not doing well, just as there are banks doing remarkably well and those that are struggling, as the article indicates.

Fourth, focusing on the ratio of problem assets to capital fails to take into account steps already taken to value those assets based on current "fire sale" values.

For example, a bank with a significant base of other real estate owned may show up on a report as having a ratio of problem assets to capital of over 50%, but many of those banks report that because of current valuations being applied at the time the real estate was taken in by foreclosure or otherwise, the banks are seeing virtually no national losses on resale — and are often showing profits.

Numerical ratios are an appropriate place to begin an inquiry but are not an appropriate place to end the inquiry. The actual condition of the bank may be far different from the initial indication.

I do not disagree with the fundamental point in the article or that there are serious problems in the market, though I seriously doubt that 4-5 banks will fail before yearend in Atlanta.

We do have a serious need to revisit long term strategies — and the deleveraging of the financial system from Wall Street down should help in that process. However, in the end, the market has its strengths, as well as its weaknesses, and notwithstanding the dire forecast of the article, every troubled bank in Atlanta of which I am aware is still talking to the sources of capital necessary to survive. Don't write all the tombstones yet!Walter G. Moeling 4th
Powell Goldstein LLP

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