Asset sales and writedowns are a top priority for many banks right now but these are only first steps.
In the long run, part of eliminating concentrations in one loan category, such as real estate development, or in a particular geographical area, must include lending elsewhere.
The problem is, there are only so many safe alternatives and everyone is going after them at the same time.
Truly diversifying into other lending sectors such as consumer or commercial and industrial loans will be challenging for most banks because larger banking companies dominate these business lines.
And there will be temptations to give up.
Good Start, But… Like other banks, Synovus has cut real estate loans and wants to diversify. Is it as easy as that? Total residential development loans in 4Q of 2007 were $5.88B, in Atlanta $1.88B; in 4Q of 2008 $4.70B and in Atlanta 1.29B; in 1Q of 2009 they were $4.34B and in Atlanta $1.08B; in 2Q of 2009 $3.83B and in Atlanta $0.81B.
Many local economies revolve around real estate growth and depend upon banks headquartered there to finance it, analysts said. Once the economy revs back up and real estate development resumes, observers speculate that real estate concentrations will resume their creep upward.