When Real-Estate Exposure Is Tangible

By PETER EAVIS Commercial real estate is going to be a drawn-out problem for banks. How do investors sniff out which lenders are most exposed? One possible first step is to compare the amount of commercial-real-estate exposure at a bank with its tangible common equity. Citigroup analysts recently did this, coming up with a list showing high numbers for certain regional banks. Zions Bancorporation's commercial real estate was equivalent to just over 650% of its TCE in the first quarter, according to Citi. It was more than 580% at Huntington Bancshares. However, the stocks of both banks already reflect considerable fears about their loan portfolios. They are both down more than 40% year to date, while both trade well below book value. M&T Bank, of Buffalo, N.Y., has commercial real estate that is equivalent to more than 600% of TCE. Yet its stock has held up well this year. It trades above 1.8 times tangible book and, unlike many peers, it has continues to pay a hefty dividend. One of the reasons M&T has retained favor is the belief that it underwrote relatively conservative loans during the boom. Many believe the bank's reserves are sufficient for any losses on its $18.8 billion commercial-property book, which contains significant exposure to the New York metro area. But the bank doesn't break out reserve coverage for commercial real estate. What's more, in 2007, M&T made a $300 million investment in a commercial-real-estate entity called Bayview Lending Group, which is generating losses for the bank. The timing of the investment, near the top of the market, suggests M&T also was capable of getting carried away. Write to Peter Eavis at peter.eavis@wsj.com