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Capmark Financial, a Top-Tier Commercial Real Estate Lender, Seeks Bankruptcy

Capmark Financial, a Top-Tier Commercial Real Estate Lender, Seeks Bankruptcy

Businessman Leaping into Swimming Pool

Courtesy of Mish 

Commercial real estate continues to show signs of extreme stress. Please consider Capmark Said Ready to File for Bankruptcy.

Capmark Financial Group Inc., one of the nation’s largest commercial-real-estate lenders, plans to file for bankruptcy as soon as this weekend, a person familiar with the situation said.

The much-expected move underscores the deep problems in the business-property market. After suffering from the collapse in residential mortgages, U.S. banks face steep losses from commercial real-estate loans. Capmark has originated more than $10 billion in commercial real-estate loans, according to Moody’s Investors Service.

It also represents a blow to the company’s private-equity owners. In 2006, a group led by KKR & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners acquired the lender GMAC LLC’s commercial-real estate business and renamed it Capmark. As of March 31, the investor group owned about 75% of the company, with GMAC and its employees owning the balance.

The Horsham, Pa., company recently reported a $1.6 billion second-quarter loss and warned it might be forced to seek Chapter 11 bankruptcy protection. KKR has already written down its investment in Capmark to zero.

Adding to Capmark’s pressures, the Federal Deposit Insurance Corp. had notified the company that it must raise capital and boost liquidity at its Utah bank, which has roughly $10 billion in assets.

Capmark Financial Pours $600 Million into its Ailing Bank

Inquiring minds are reading Bank Watch: Capmark Financial Pours $600 Million into its Ailing Bank

Capmark Bank, the wholly-owned Utah industrial bank subsidiary of Capmark Financial Group Inc., agreed to a cease and desist order with each of the Federal Deposit Insurance Corp. (FDIC) and the Utah Department of Financial Institutions. The orders require Capmark Bank to maintain a Tier 1 leverage ratio of at least 8% and a Total Risk-Based Capital ratio of at least 10%.

Capmark Bank reported $11.1 billion in assets as of June 30 and net loss of $261.3 million.

Capmark Bank’s nonperforming loans and foreclosed property assets increased by nearly $240 million from the first quarter to the second quarter and now totals nearly $631 million. About 78% of those assets are related to commercial real estate.

State Arbitrage Game Gone Mad

Joe Weisenthal writing for the Business Insider was on top of this story back in September. Please consider Commercial Real Estate May Kill "Well-Capitalized" Capmark Bank.

Capmark Financial Group, one of the largest commercial real estate lenders in the US, said this week that it was seeing huge default rates and that it could be headed for bankruptcy.

It’s the latest in a string of decently-sized, non-Wall Street banks that appear headed for the dustbin of history (or into Sheila Bair’s loving embrace)

What caught our eye in Bloomberg’s report Capmark Distress May Signal Bank Failures Topping 100 was this paragraph:

Capmark’s holdings include a banking unit based in Salt Lake City with $11.1 billion in assets and a “well- capitalized” ranking from its regulators, according to the bank’s Web site. Deposits stood at $8.4 billion on June 30, according to the company’s quarterly statement.

Two things stand out:

Regulators described it as "well-capitalized," which means that they were totally behind the curve.

Capmark is based in Pennsylvania, but capitalized in Utah, making it one of several banks to have set up in the state for regulatory arbitrage purposes. If we’re going to eliminate multiple Federal regulators, we might as well get rid of states, too, since shopping around for favorable states may be just as big of a deal as shopping around to be regulated by the Office of Thrift Supervision.

Capmark Bank was not in the first 100 banks to fail but it appears to be a rock solid bet for the next 100.

Mike "Mish" Shedlock

 


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