Business

Building loans bite bank stocks

Construction loans on Monday became the latest source of angst wreaking havoc on bank stocks.

After Friedman, Billings, Ramsey Inc. analyst Paul Miller issued a report highlighting banks with the most exposure to these loans, a number of financial firms saw their shares nosedive. Among the biggest losers were Atlanta-based SunTrust Banks Inc. (down about 9 percent) and Memphis-based First Horizon National Corp. (down about 11 percent).

Loans to builders and developers were big business when the housing market was booming, particularly in hot spots such as the Southeast. Now in the slowdown, builders who took out the loans are struggling to make payments as demand for their projects wanes.

The biggest worry is loans involving single-family homes. The top 50 lenders had $7.8 billion in troubled single-family construction loans at the end of the first quarter, about 8 percent of the total, Miller found. Banks have just started breaking out these numbers, so there's no historical context, Miller said, but the issue is a rising concern.

“We remain very cautious on financials in general, and we recommend investors avoid or sell institutions with the largest exposure to residential construction loans,” he wrote.

First Horizon had the highest ratio of single-family construction loans to tangible common equity, a measure of a company's net worth, at 150 percent, according to the report. Also in the top 20 most exposed were Winston-Salem-based BB&T Corp. (71 percent) and SunTrust (68 percent).

Charlotte's big banks, Bank of America Corp. and Wachovia Corp., rank as the top two construction loan lenders nationwide, respectively. Their loans don't account for such an outsized portion of their portfolios, but worries about their delinquencies also are mounting.

At the end of the first quarter, Bank of America had $34.7 billion in construction loans, including $10.7 billion in single-family construction loans. The single-family loans equated to 19 percent of tangible equity. Of these loans, 8.7 percent were delinquent, according to the report.

Wachovia's construction loans totaled about $24 billion, including $8.4 billion in single-family construction loans. The single-family loans amounted to 31 percent of tangible equity. About 11.8 percent were delinquent.

Bank of America shares fell nearly 4 percent on Monday to $21.53, while Wachovia shares dropped nearly 7 percent to $13.89. BB&T shares slipped more than 5 percent to $21.68.

Construction loans on Monday became the latest source of angst wreaking havoc on bank stocks.

After Friedman, Billings, Ramsey Inc. analyst Paul Miller issued a report highlighting banks with the most exposure to these loans, a number of financial firms saw their shares nosedive. Among the biggest losers were Atlanta-based SunTrust Banks Inc. (down about 9 percent) and Memphis-based First Horizon National Corp. (down about 11 percent).

Loans to builders and developers were big business when the housing market was booming, particularly in hot spots such as the Southeast. Now in the slowdown, builders who took out the loans are struggling to make payments as demand for their projects wanes.

The biggest worry is loans involving single-family homes. The top 50 lenders had $7.8 billion in troubled single-family construction loans at the end of the first quarter, about 8 percent of the total, Miller found. Banks have just started breaking out these numbers, so there's no historical context, Miller said, but the issue is a rising concern.

“We remain very cautious on financials in general, and we recommend investors avoid or sell institutions with the largest exposure to residential construction loans,” he wrote.

First Horizon had the highest ratio of single-family construction loans to tangible common equity, a measure of a company's net worth, at 150 percent, according to the report. Also in the top 20 most exposed were Winston-Salem-based BB&T Corp. (71 percent) and SunTrust (68 percent).

Charlotte's big banks, Bank of America Corp. and Wachovia Corp., rank as the top two construction loan lenders nationwide, respectively. Their loans don't account for such an outsized portion of their portfolios, but worries about their delinquencies also are mounting.

At the end of the first quarter, Bank of America had $34.7 billion in construction loans, including $10.7 billion in single-family construction loans. The single-family loans equated to 19 percent of tangible equity. Of these loans, 8.7 percent were delinquent, according to the report.

Wachovia's construction loans totaled about $24 billion, including $8.4 billion in single-family construction loans. The single-family loans amounted to 31 percent of tangible equity. About 11.8 percent were delinquent.

Bank of America shares fell nearly 4 percent on Monday to $21.53, while Wachovia shares dropped nearly 7 percent to $13.89. BB&T shares slipped more than 5 percent to $21.68.

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