Wall Street Gears for Its New Pain

Wall Street Journal (03/03/08) P. C1; Wei, Lingling; Smith, Randall
Banks and securities firms are bracing themselves for the losses their exposure to commercial real estate will cost them--losses that could last longer than those from the subprime mortgage boom going bust. Goldman Sachs analyst William Tanona expects total first-quarter writedowns of $7.2 billion for six of the major firms--Bear Stearns Cos., Citigroup Inc., J.P. Morgan Chase & Co., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley--which together had commercial property exposure of $141 billion at the end of last year. Goldman forecasts that the financial fallout from commercial real estate could last up to two years due to the fact that only 28 percent of commercial real estate loans have been packaged into securities since 1995 versus approximately 80 percent of subprime loans. The higher level of securitization subjects the subprime assets to more-immediate mark-to-market accounting. On the positive side, the excesses that overtook the nation's housing sector are not nearly as prevalent in commercial real estate, as overbuilding of office complexes, shopping centers and other commercial properties never reached such levels.