A billion here, a billion there, soon it will add up to serious money....

Posted by Mark on 29th Jan 2009
Well it looks like in the case of losses on commercial property loans it does.

I've known John Fraser-Andrews for about 15 years, and I hope he would not be too offended to hear me say that he was a pretty average agent and a very average scrum-half. 

However about 12 years ago, he quit surveying to "do something in the city".

It is only fairly recently that I realised that he is actually of of the country's leading equity analysts at HSBC, strangely enough covering the REIT sector.  He is also one of the industry's main bears, billions seem to be wiped off the value of British Land et al., whenever he puts pen to paper.

His latest prognosis can be downloaded here, it is not quite as rosy as Mike Prew's analysis that I commented on below.

There is one statistic, hidden away on page 33, that really is worth focusing in on.  That following an expected further fall of 32% in values (which is not much worse than the consensus view) that £91bn "of UK bank commercial property debt" will be in negative equity, that's out of a total of £247bn.

Now obviously this loss would only be generated once the debt becomes non-performing; either the interest not being paid or the full amount not being repaid on expiry, as most banks are not obliged to mark to market.

However, given the likely unprecedented level of tenant default and the fact that 80% of this debt will have to be refinanced by 2011, it doesn't bode well.

These losses will either take the form of further write offs at banks, or may be covered by the governments "insurance" scheme, that hopefully will be announced within the next few weeks.

Makes rescuing the car-makers look cheap.

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