Midsize Banks Have Worst Credit

(MoneyWatch)  Pop quiz: Which banks stink the most in terms of the quality of their loans -- megabanks, midsize players or small institutions? Here's a hint. The giants have gotten most of the headlines, while the community bank population has been falling for some time.

Right, it's the mid-tier guys, meaning banks with $10 billion to $100 billion in assets. These banks have higher concentrations of bad loans than the largest institutions and higher loss rates on those loans than smaller banks, according to a new report by investor advisory firm Concept Capital.

The megabanks are seeing the greatest delinquencies for construction and development, and commercial real estate loans. But they also have diverse businesses, drawing revenue from other kinds of loans (along with trading, underwriting and other activities). As a result, the big boys are less exposed to C&D and CRE loans.

Small banks are suffering, too, but on average their loans portfolios are holding together somewhat better than their midsize kind. And because they have fewer assets and branches, small banks are also generally easier for another institution to scoop up.

Finally, while big banks can raise capital in the capital markets, not to mention from the ever-generous U.S. government, and while small institutions can make do with less, midsize banks have fewer options for raising money to keep their often substantial operations afloat.

Banks regulators "are concerned that these banks have sizable commercial real estate losses to come even though they are far behind their bigger bank rivals in raising new capital and building reserves," writes Concept Capital analyst Jaret Seiberg.

Which midsize banks are the stinkiest? Zeroing in on C&D loans, where companies of this size have the greatest exposure, International Bancshares (IBOC) claims the top spot. More than 29 percent of the Lardeo, Texas, bank's loan holdings are tied up in C&D. The runner up is Columbus, Ga.'s Synovus Financial (SNV), with some 27 percent of its total loans in C&D.