Friday, July 4, 2008
East Bay Business Times - by Jessica Saunders
More banks may join Bank of America Corp. in selling off assets, including real estate, as they try to raise federally required capital reserves, brokers said.
Regional banks, especially those in California, Nevada and Arizona, are having to set aside much higher risk capital reserves to offset potential losses on loans related to real estate, said Anton Qiu, a principal with TRI Commercial/CORFAC International, who specializes in acquisition and disposition of investment properties.
The federal Office of the Comptroller of the Currency sets the minimum percentage of capital banks are required to hold in reserve, Qiu said. Banks will try to raise the capital, but if they can't they may have to sell off assets, he said.
The higher reserves are being required to cover possible losses in construction and land acquisition loans as more and more real estate development projects are called off due to the economic downturn, Qiu said. Many banks went after construction and land financing business in order to compete with Wall Street lenders who were making big profits in realty transactions on the secondary market.
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