Commercial Lending Still on the Decline ???

In the “Deals and Dealmakers” section of the Wall Street Journal on May 21, 2010, Michael R. Crittenden (I think he is a WSJ staff writer) authored an article titled, “Problem Banks up to 775”.

Within that article, he states that, as of the end of Q1 2010, 775 banks in the U.S., or roughly 10% of the U.S. industry, are “problem” institutions …. “as bad loans in the commercial real estate market weighed on bank balance sheets.” (At the end of 2009, 702 banks were listed as problem institutions, and, at the end of 2009, 252 banks were listed as problem institutions.)

FDIC Chairperson, Sheila Blair, was quoted in the article, saying “the banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility.”

Further on in the article it says, “banks, squeezed by problem loans and continuing economic struggles, responded by reducing their lending. The industry’s total loan balances grew by 3% in the quarter (Q1 2010), but the increase was due to accounting changes that required banks to bring securitized assets back onto their balance sheets. Without those accounting changes, lending would have declined for the seventh straight quarter.”

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My comments about this ….

This situation, banks restricting commercial lending, has to be fixed (i.e., improve) before there can be any “robust” recovery in the A/E/C industry and that, of course, applies to the recovery of the A/E/C reprographics industry as well. I’ve mentioned this same issue in previous posts on my blog, as well as ….companies in the reprographics industry know (or should know) that real estate developers commit to projects when they (the real estate developers) have access to “other peoples’ money” (commercial real estate loans, primarily from banks and insurance companies) to finance their projects, and, when commercial real estate loans are difficult (or impossible) to get, they will not commit to projects. I would think that this is one of the reasons why the AIA ABI Index has shown declining demand for many, many months in a row.