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DO YOU EXPECT MORE BANKS TO GO SOUTH?

It seems like the hits just keep coming. First Bear Stearns took a dive, then Fannie Mae and Freddie Mac hit the rocks, followed by dismal news of losses from Washington Mutual and Wachovia. And if our poll respondents are correct, we haven’t hit bottom yet. A staggering 83% predict more banks will go south before this is all over. Only 17% think we’re over the hump. Tom Didio, senior managing director with Holliday Fenoglio Fowler, takes a balanced view of the matter. Here are his thoughts:

“I expect some of the more aggressive banks may have further quarters of depressed earnings and losses, but you have to be cautious in terms of projecting into the future. There are still plenty of solid banks that have made good loans over the years and they will continue to generate good earnings. Banks like Wells Fargo that have good asset bases can withstand a downturn in the market. You have to look at the good and the bad. Everyone wants to jump on the bandwagon when there are valuation issues like Wachovia, Bear Stearns and Washington Mutual, but I think there are a lot of banks out there that are making quality loans because they have good borrowers.

“I think you may see some further softness in the banking market, but right now I think we’ve seen the worst of it. We may be through the tough part of this down cycle and I hope to see things get better over the next six to nine months.

“Lenders have to stop sitting on their hands and start lending money. If they do that, the market will get better. Right now, lenders are afraid to make loans, but the real estate market in New Jersey is pretty solid. There’s no issue with the real estate itself, the issue is credit, and if people start lending, we’ll work our way out of this. People have to start lending and not be worried about someone looking over their shoulder and criticizing them for making a real estate loan.

“There are great borrowers in New Jersey, borrowers who are well capitalized, experienced, with big portfolios and good liquidity. In the past, institutional lenders wanted to lend in New Jersey. Now, we need people to say, ‘ok, this is a great market and we’re willing to extend credit.’”

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