In what is certainly no surprise in this corner, Bank of America Says Losses Shift to Commercial Loans.

Bank of America Corp., the biggest U.S. consumer bank, said credit weakness is spreading to commercial borrowers from residential customers and loan losses probably will deepen in the third quarter.

Home builders unable to repay their loans are contributing to deterioration among commercial borrowers, said Brian Moynihan, head of the global corporate and investment banking unit, at a New York conference today. More than half the Charlotte, North Carolina-based bank’s $13.4 billion in loans to builders are considered troubled, 19 percent are not paying interest and losses are likely to mount, Moynihan said.

Bank of America’s commercial loans were $335 billion as of June 30, and a home-builder portfolio that accounts for less than 4 percent “won’t create major pain for us, but it’s going up,” he said. “It’s not pretty.”

It’s Not Pretty

Indeed it’s not pretty. Furthermore Bank of America (BAC) is mistaken if it thinks commercial woes will be contained to homebuilders. Even IF the woes remain limited to homebuilders, that would mean a likely $7+ billion in writeoffs.

Now what about financing of malls, retailers, office space, etc etc. A modest 10% writeoff across the board (highly likely IMO) would mean another $33 billion in writeoffs are coming from commercial real estate. And what about further consumer losses in credit cards and home equity lines?

The second tsunami (commercial real estate) has arrived even though losses from the first tsunami are still mounting.

Mike “Mish” Shedlock
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