11/07/2008

Lehman, Credit Suisse Top Writedown Tally


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CORRECTION: The second paragraph of a Nov. 7 article, "Lehman, Credit Suisse Top Writedown Tally," incorrectly attributed Credit Suisse's $2.6 billion commercial real estate writedown over the past year to J.P. Morgan. The headline and first paragraph correctly reported that Credit Suisse took the second-largest writedown. J.P. Morgan didn't disclose its commercial real estate writedowns, as was correctly stated lower in the article. ----------

Lehman Brothers and Credit Suisse took the largest commercial real estate writedowns over the past year, according to a review by Commercial Mortgage Alert.

Lehman had $4.8 billion of global net writedowns, followed by Credit Suisse at $2.6 billion (see table on Page 12).

Five other lenders had totals exceeding $1 billion: Bear Stearns ($2.2 billion), Wachovia ($2.17 billion), Deutsche Bank ($2 billion), Citigroup ($1.6 billion) and Merrill Lynch ($1.1 billion).

All told, a dozen major lenders took $19.4 billion of net writedowns in the 12 months ending Sept. 30. That was equal to 9% of the 12 lenders' total $215 billion net exposure to commercial real estate at the end of last year. Not included in that group is J.P. Morgan, which disclosed only combined commercial and residential writedowns.

Over the past year, 13 major lenders (including J.P. Morgan) reduced their net commercial real estate exposure by 39% via a combination of writedowns, asset sales and the runoff due to maturities. That curbed their exposure by $89 billion, to $138.6 billion from $230.6 billion. The biggest reductions were made by Lehman ($14.9 billion), Deutsche ($11.9 billion), Credit Suisse ($11.5 billion) and Morgan Stanley ($9.8 billion).

The review was based on financial statements, company presentations to analysts and other sources. It tracked global holdings of both commercial mortgages and commercial MBS for the 13 big lenders.

While the figures are believed to present a broadly accurate view of industry writedowns and exposure, it's important to note that the data presented for individual lenders are subject to some inconsistencies. The companies didn't report commercial real estate data uniformly, and in some cases specific breakdowns for commercial real estate weren't provided. Totals for net writedowns and net exposure were sought, but occasionally only gross numbers were available. For Bear, Commercial Mortgage Alert estimated numbers based in part on information released by the Federal Reserve, which assumed $30 billion of Bear assets in conjunction with J.P. Morgan's takeover of the investment bank.

Most lenders started taking writedowns on commercial real estate in last year's fourth quarter. Before that, figures on exposure and writedowns generally weren't reported. However, four lenders disclosed material reductions in exposure in last year's third quarter, indicating they were the earliest players to curb their risk. Morgan Stanley chopped its net exposure by a whopping 52% that quarter, to $17.5 billion from $36.2 billion. Wachovia cut its exposure by 28%, to $7.6 billion from $10.5 billion. Credit Suisse's exposure fell by 25%, to $22.9 billion from $30.5 billion. And Bank of America reduced its exposure by 14%, to $15.8 billion from $18.4 billion.

While the average writedown was equal to 9% of total exposure, some lenders had significantly lower rates. Notably, Morgan Stanley's $700 million of writedowns in the 12 months ending Sept. 30 equaled only 1.9 % of its total exposure at Sept. 30, 2007. Goldman Sachs also wrote down $700 million over the year, equal to 3.7% of its exposure at yearend 2007. A relatively low writedown rate was also reported by BofA (4.2% of exposure at Sept. 30, 2007).

By contrast, relatively high writedown rates were reported by Wachovia (equal to 20.6% of exposure at Sept. 30, 2007) and Bear (14.5%). But Wachovia's exposure total measured only its trading account. Lehman's writedown rate was 12.3%, but that figure will rise substantially once its real estate assets are liquidated by a bankruptcy court.

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