The Next Tsunami; Commercial Mortgage Defaults Are Going Up

U.S. Bank said its bad loans might increase by nearly 30 percent this quarter.

At a conference in New York Tuesday, Minneapolis-based U.S. Bancorp (NYSE: USB) CEO Richard Davis told investors that the cost of bad loans could increase 25 percent to 28 percent from the previous quarter.

He also said that nonperforming assets (loans that aren’t meeting interest payments) may have increased as much as 32 percent.

Much of the default amount is tied to commercial real estate from California developers accounts for the bulk of the defaults, however, he added that the company’s conservative approach to lending should soften the blow. He also said that the company is still building reserves and should not need more capital.

Some real estate experts have commented that the default rates on commercial real estate loans might just eclipse the level of home mortgage defaults. Recently the Rand Tower in Minneapolis was sold for 1 million dollars LESS than the previous owner had bought it for just a few short years ago. Source: Minneapolis /St Paul Business Journal and internet sources.