Florida's faltering real estate market - hurt by the highest residential foreclosure rate in the U.S. - has left some of the nation's largest banks holding billions of dollars in questionable loans.
Fifth Third Bank is a prime example. After charging off nearly $900 million worth of troubled Florida assets, Fifth Third still has $922 million worth of bad loans, leases and other assets in the state - more than one-fourth of the bank's $3.2 billion in non-performing assets. Problems stem both from large deals extended to a surge of Florida homeowners who could not pay their mortgages and common business deals that failed.
The banking industry's Florida problems have wide-ranging repercussions. Banks preoccupied with too many bad loans have less ability to lend and more difficulty growing and returning to sustained profitability. In addition, a backlog of bad loans could slow the banks' exit from the government's Troubled Asset Relief Program, which pushed $3.4 billion into Fifth Third in December 2008.
Independent bank analyst Bert Ely, based in Alexandria, Va., says plenty of banks have troubles in Florida after what he calls a "classic real estate bust after gross over-building and over-lending." Fifth Third and many other banks, he says, will be dealing with their Florida problems for years.
Fifth Third isn't the only bank with lingering problems in Florida. BB&T, SunTrust and Regions banks all are struggling with bad loans in the state. Real estate problems have contributed to the failure of 15 banks in Florida in the past 16 months - including BankUnited, the nation's fifth-largest bank failure.
At Fifth Third, since mid-2008, $892 million or one-fifth of the bank's $4.3 billion worth of net chargeoffs were in Florida. Also in late 2008, Fifth Third set aside $473 million worth of troubled loans to be sold at a loss, and 55% of those were in Florida. The bank charged off $1.6 billion in loans alone in the fourth quarter of 2008, and another $490 million in loans during the first quarter of 2009, although those chargeoffs were slightly better than expectations, says Kevin Kabat, the bank's chairman, president and CEO, in a recent Cincinnati Enquirer report.
The write-offs have cut Fifth Third's Florida loan portfolio to $8.1 billion at the end of September, down from $9.7 billion a year ago. Still, the state accounts for more than one of every four of the bank's troubled assets.
Even so, several analysts have given Fifth Third high marks for recognizing its problems quickly and writing off bad assets to help fix the bank's books. The bank also has tightened lending standards and suspended new loans in troubled categories. In May, Fifth Third passed the government's "stress tests" of the nation's largest banks.
It's unclear when the credit climate in Florida will improve. Last month, RealtyTrac, an Irvine, Calif.-based foreclosure listing service, reported that Florida's foreclosure rate was the second highest in the nation, trailing only Nevada. Last month, the Mortgage Bankers Association reported that as of Sept. 30, Florida actually had the highest residential foreclosure rate in the nation at 12.74%, according to Collections & Credit Risk.
That group also reported that the pipeline for future foreclosures in Florida is swelling. Nearly another one out of eight Florida mortgage-holders was behind at least one payment at the end of September. Analysts are watching to see how badly the problem loans to homeowners, investors and developers affect Florida's broader economy.
