Banks Slow to Recover from Meltdown

Commercial Loans, Weak Consumer Spending Puts Banks on FDIC's Radar

(CBS)  A year after the collapse of Lehman Brothers, CBS News correspondent Anthony Mason reports the banking system and the credit markets are still feeling the economic aftershocks.

Just last Friday, federal regulators seized banks in Chicago and Minnesota, as well as a Seattle lender. Already this year, 92 banks have failed; in 2007 there were just three failures.

"The markets are still - they're not shut down, but they're still dysfunctional," said Mark Zandi, of Moody's Economy.com.

Georgia's First Cherokee State Bank is healthy, but CEO Carl Hames admits, "It's extremely tough out there. And most community banks in Georgia have struggled in raising additional capital."

Banks are currently on the FDIC's problem list of vulnerable financial institutions. Smaller banks, in particular, are under growing pressure from bad commercials loans they made for offices, malls or hotels.

"Aside from the foreclosure problem in the housing market, the most significant threat to the economy is the growing number of commercial mortgage loan defaults which is going to be very difficult for a lot of small banks to digest," Zandi explained.

For example, 16 percent of construction loans are now in delinquency, more than triple the number in 2007. And 38 percent of all loans for condominium construction are 30 days past due.

Chicago's Corus Bank, one of those seized by the FDIC Friday, was one of the biggest condo construction lenders. Its delinquencies were running more than 70 percent.

Banks also hadn't counted on near 10 percent unemployment, which has consumers cutting their spending and put many retailers in trouble.

According to Bill Gross, of the investment management firm PIMCO, "To the extent that the consumer doesn't come back, then commercial real estate itself won't come back."

That could mean malls or hotels may not be able to meet their mortgage payments, which will mean more losses for the banks.

A year ago, the U.S. financial system went into the emergency room. The patient may be out of intensive care, but it still needs help getting on its feet.

[eastcoastman]

the rich get richer,and the poor get poorer!!!!! greed wins again!!!!

[eastcoastman]

and do you think they intend to pay back every penny...''no''....crooks

[eastcoastman]

greed...greed...greed...greed....greed...greed...greed...greed

[eastcoastman]

banks stole the united states tax payers money,a hand out...and wont lend the people their own money back..what a scam....what a scam!!!!
dirt low down crooks....they are breaking the world economy by not lending!! it hurts them also !!!

[pepperwood2]

Report: U.S. Makes $4 Billion From Bailout Banks ..... U.S. government reportedly has hauled in about $4 billion in profits from large banks that have repaid their obligations from last year's federal bailout. But they want more paybucks.

[jtdev1]

did you also read where they said to not expect the auto bailout to be repaid? Thats something like 25 Billion.... so we're still - 21 billion...

(and counting)

[woeisme1]

But I recall that the larger banks were spending stimulus money and buying up the small failing institutions. I guess I imagined all those blogs a few months ago. I guess I am only still imagining that these banks are still not lending money to small business and individuals.

I don't think spending will recover for some time. Americans, in my view, were shocked by the finacial collapse last year. It seems they learned their lesson. So if banks are depending on consumer spending to save them, they may fail before that happens.

[woeisme1]

Well this does'nt sound good.

[woeisme1]

What banks? I heard today that several have already re-paid bailouts and some more are ready to repay.

[TheVarsityClub]

"Are under growing pressure from bad commercial loans they made for offices, malls and hotels."...... This is a big problem, a really big problem, About a year away. Save your money.