dsnews.com -- The market is now poised for many banks to begin unloading
nonperforming assets—particularly commercial real estate—in the form of
bulk sales, according to Fitch Ratings. Tightening yield spreads in the commercial market, pressure from
regulators regarding loss reserve positions, and limited financing will
prompt banks to unload nonperforming commercial assets over the next 12
to 18 months, according to the ratings agency. “We see tightening risk spreads reflecting an influx of yield-starved investors such as hedge funds, high-yield asset managers, and other lightly regulated entities seeking higher returns in a continued low interest rate environment,” the agency stated.Fitch anticipates further tightening of spreads and a more stable commercial real estate market will encourage prospective buyers to increase their bids on commercial properties. State consumer protection laws and wider spreads in the consumer-lending market suggest bulk sales will not be as popular in this sector, according to Fitch Fitcth noted a few banks have already begun participating in bulk sales transactions, including Synovus Financial, SunTrust, and Hancock Holding Co. During the fourth quarter of 2012, Synovus completed its first bulk transaction since 2010. The $530 million sale posed a 30 percent loss rate for the bank, but Fitch noted this is an improvement from its last bulk sale two years prior when it incurred a loss rate of 40 percent. SunTrust engaged in a $740 million bulk sale in recent months with similar results. Fitch reported the sale held “just under 30 percent of carrying value.” Also in the fourth quarter, Hancock completed a $40 million bulk sale, citing “cost-savings factors” as its motive, according to Fitch. In addition to allowing banks “to focus more attention on core banking activities” unloading nonperforming real estate assets lets banks off the hook for costly upkeep, real estate taxes, property insurance, and more.
