The Atlanta Journal-Constitution is reporting Real estate market threatening Georgia banks.

Georgia’s banks top the nation in terms of concentration of loans to real estate developers and builders. Figures are for the mean construction and development loans as a percentage of banks’ core capital as of March 2008, the latest numbers available.

1. Georgia 178%
2. Washington 169%
3. Arizona 168%
4. North Carolina 165%
5. Idaho 158%
6. South Carolina 142%
7. Oregon 141%
8. Florida 130%
9. Nevada 110%
10. Virginia 101%
Source: Federal Deposit Insurance Corp.

Nearly $1 out of every $5 on Georgia banks’ loan books bankrolled homebuilders and real estate developers — by far the highest proportion in the state in at least 30 years, according to federal regulators’ data.

That is putting several banks in the state — and perhaps significantly more if economic conditions deteriorate — at greater risk of failing or being pushed into takeovers by healthier banks, some people in the industry say.

“In Atlanta, this is the worst market we’ve had, ever,” said Walt Moeling, a lawyer with Atlanta firm Powell Goldstein who has been representing local banking firms since 1968. “Everything went splat.”

Christopher Marinac, a banking analyst with Atlanta-based FIG Partners, said it’s too soon to tell when the industry will hit bottom or how long recovery will take.”I think there are going to be a lot of shotgun weddings [to rescue banks] that you’re never going to read about,” he said.

Another misery measure: Industry insiders say there are now almost four dozen banks on Georgia’s watch list for problem banks. Braswell, Georgia’s banking commissioner, said the figure is in the “right ballpark,” and has been rising.

Still, he and other industry veterans say that while metro Atlanta has become a hot spot for problem banks, they do not expect the wholesale bank failures that swept through Texas and several other states during the savings-and-loan debacle. They say the number of problem banks today pales in comparison, partly because banks are better-capitalized.

During that earlier era, about 200 banks and thrifts were failing across the nation each year, said Mark Schmidt, head of bank supervision at the FDIC’s regional office in Atlanta. Nationwide, only four banks have failed this year, and only seven since 2005.

“It doesn’t feel to me that it’s going to be the same,” said Schmidt, who was at the FDIC during the earlier crisis. “It’s not national.” Within the seven Southeastern states where his office supervises 1,100 banks and thrifts, most problem banks are in Georgia and Florida.

The FDIC currently has 90 banks on its national watch list (which uses narrower criteria than Georgia’s) and it will get longer. “The trend is obvious,” said Schmidt.

But Schmidt doesn’t expect it to come close to matching those earlier days, when 1,500 banks were on the watch list at times.

Not A National Crisis?

I think he means … Yet. Didn’t we just go through the same nonsense with housing? Nearly every state in the union had to be in housing decline before the NAR and the NAHB admitted the housing problem was national.

But yes, we will not see 1500 banks on the problem list, for the simple reason there are far fewer banks today. Please see S&L; Crisis vs. Current Crisis for a valid comparison between what’s happening today vs. the 1980’s.

All things considered, the situation today is far worse. Fewer banks will fail, but those that do will be way larger on average.

Mike “Mish” Shedlock
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