Nation’s Biggest Banks Tighten Commercial Lending Practices

Nervous about what they see as growing credit risks in commercial real estate, some of the nation’s biggest banks are tightening their lending practices.The move reflects growing jitters among bankers and regulators that an influx of capital into commercial real estate lending is causing some in the business to take aggressive risks and could leave banks overexposed to a cyclical industry.Banks like Bank of America and JPMorgan Chase & Company are choosing in some cases not to compete with small and mid-sized banks, hedge funds, and other financial institutions, which they fear are agreeing to lending terms and prices that would be unheard of in a less feverish environment.“It’s becoming harder and harder to find transactions that make economic sense,” the head of commercial real estate banking at Bank of America, Eugene Godbold, said. “We’re seeing [loan] structures that have a much higher degree of leverage” than in past years.“We’re not intentionally slowing down our business,” he added. “But there is an element of prudence that one should exercise in their business.”JPMorgan executives apparently feel similarly. Growth in the bank’s commercial real estate lending slowed by four percentage points last year. “We did de-emphasize real estate a little bit for us, because we see the market isn’t pricing or returning what it should for the risk in many cases,” the New York bank’s commercial-banking chief, Todd Maclin, said.The Federal Reserve, in a periodic survey of loan officers earlier this year, found a “considerable easing” of the standards that some banks have adopted for commercial real estate loans. Some bankers also reported lowering the interest rates they demand on such loans. Among the reasons bankers cited was greater competition from banks and other lenders.The intensifying competition is in part yet another byproduct of the huge supply of capital in the hands of yield hungry investors. The same factor has driven the recent explosion in the markets for various asset-backed securities, which have become popular among hedge funds, insurance companies, and some foreign banks.To be sure, that trend also is in part a sign that the commercial real estate market remains robust. But some executives are worried that it’s overheating and that banks that compromise on the structure and pricing of loans risk getting burned.“I’m from Texas, and I’ve seen this movie before,” Mr. Maclin said at an investor conference in late February. “I just think that you need to be careful and cautious when you’re dealing with these riskier loan classes, because they can come back to haunt you later.”Such observations have fueled concerns among bank regulators. In January, a group of federal agencies proposed guidelines that would require banks to beef up their capital positions if certain commercial real estate loans comprise especially large chunks of their total loan portfolios.If enacted, the new guidelines would primarily affect smaller banks, especially in the South and Midwest. Instead, it is executives at the bigger banks who seem to be taking steps to rein in the lending – even though their loan portfolios aren’t overly weighted toward loans and commercial projects like shopping malls and apartment complexes.

Nation’s Biggest Banks Tighten Commercial Lending Practices

Nation’s Biggest Banks Tighten Commercial Lending Practices

More from the New York Sun

Is Agatha Christie Being Adapted to Death?

The Audacity of ‘Hope’

Trump Argues Letitia James’s Gargantuan Fraud Case Against Him Was Built on Coerced Testimony From Michael Cohen

Houthis Capture Key Island and Tighten Grip on Red Sea Chokepoint

NFL Rivals Hope To Learn From Rams Disastrous Performance After Last-Minute International Travel

The West, 25 Years After 9/11, Has Failed To Defeat Islamic Terrorism

9/11: A Generation Later

With Communications Down on 9/11, Americans Turned to Radio, Which Fixes the Day’s Horrors in Time

More from the New York Sun

Is Agatha Christie Being Adapted to Death?

The Audacity of ‘Hope’

Trump Argues Letitia James’s Gargantuan Fraud Case Against Him Was Built on Coerced Testimony From Michael Cohen

Houthis Capture Key Island and Tighten Grip on Red Sea Chokepoint

NFL Rivals Hope To Learn From Rams Disastrous Performance After Last-Minute International Travel

The West, 25 Years After 9/11, Has Failed To Defeat Islamic Terrorism

9/11: A Generation Later

With Communications Down on 9/11, Americans Turned to Radio, Which Fixes the Day’s Horrors in Time