News and commentary

Beyond Subprime: Banks' Top 5 Problem Loan Areas

By Richard Suttmeier
Updated: Thursday, July 03 2008 05:07:PM

Beyond Subprime: Banks' Top 5 Problem Loan Areas
Posted Jul 03, 2008 02:45pm EDT by Aaron Task in Investing, Recession, Banking
Related: FITB, ZION, CORS, WFC, AXP, XLF
The past few weeks have brought a serious rethinking of the "credit crunch is ending" mantra that was making the rounds on Wall Street in March and April.
Rather than ending, the credit crunch is moving beyond its subprime mortgage origins. According to Richard Suttmeier, chief market strategist of RightSide.com, the top five problem loan sectors to watch now are:
  • Credit card debt
  • Home equity loans
  • Commercial real estate loans
  • Commercial and development loans
  • Derivatives generally ($182 trillion notional value)
Each of these potentially bad loan categories are rising among FDIC insured institutions, Suttmeier notes. Rather than pulling back, he says borrowers are tapping outstanding lines of credit while banks are using "tricks" (like making payments on behalf of debtors) in order to keep the loans in the "current" category.
This practice "has got to stop," Suttmeier says.