Hey, it could be worse.
Sure, home sales are down, foreclosures are up, and some homebuilders are starting to default on loans. As the third quarter wrapped up in October, it was clear that national financial institutions had lost billions—$7.9 billion for Merrill Lynch and $1.2 billion for Countrywide Financial, for example—thanks mostly to subprime loans. Locally, 1st Mariner Bancorp, a mid-sized community bank, is mirroring those same problems: It got into some trouble with Alt-A loans—those are slightly better quality than subprime—and lost $3.58 million in the third quarter.
Still, the news isn't all bad. Ferris, Baker Watts analyst Matthew Schultheis, who covers First Mariner, thinks the bank will bounce back, although "my guess is not until some time in the second half of '08."
Other area banks have weathered the storm fairly well. Provident Bankshares has no problem loans in its residential builder portfolio, and only a small fraction of its home equity loans are 90 days past due. While they still could face trouble ahead, "that's better than what we've seen in other parts of the country," says T. Rowe Price's regional bank analyst Chris Fortune.
Other regionals like small Sandy Spring Bancorp and large PNC—which last summer bought out the 150-year-old Mercantile-Safe Deposit and Trust—"for the most part, were better positioned" than the national average, says Fortune, and so haven't been hit as hard. M&T saw earnings fall 5 percent in the third quarter, but "historically M&T has always done better than its peers in managing credit quality and interest-rate risk," says Bear Stearns & Co. analyst Salvatore DiMartino, who expects M&T to emerge relatively unscathed.
While analysts caution tough times might still be ahead—most don't expect a turnaround until at least Spring of 2008—our region has benefited from stronger-than-average economic conditions, including low unemployment and growth tied to the federal government. DiMartino is quick to point out, too, that the credit markets, rather than signaling that banks are going to tank, is merely normalizing after the strange days of the housing market boom. "We don't think credit quality is deteriorating to the point where banks are going to get into trouble," he says.
