On Monday the 21st, Barron's had a cover story entitled "Buy Banks/What to Bank On." The article cited better earnings from Wells Fargo (WFC) and JP Morgan (JPM); perhaps this was the turning point it pondered. Unfortunately, the next day Wachovia (WB) posted a second quarter loss of $8.9 billion, and slashed its dividend.
The first shoe has dropped - the housing market. The second shoe is a bit down the road, but I think it's becoming apparent. Commercial real estate is likely to be the next problem for banks. Vacancies are rising; see this article in the Wall Street Journal about Phoenix. And the problem is similar in many parts of the country. The recession is taking some businesses under and forcing other to cut back on space. Some reports estimate that office vacancies could average around 17% nationwide in 2009 (see Financial Week). The same factors that inflated values in residential property have impacted commercial property, where I believe prices were inflated as well. I think more write-downs are around the corner, but from a different source.
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