NEW YORK CITY-Moody’s Investors Service is pushing back its timetable in evaluating a potential downgrade for hundreds of troubled European banks, the global ratings agency confirms to GlobeSt.com. After originally being announced in January, the next rating action is expected to place in early May, which could affect 114 financial institutions across 16 European countries.
In a statement released on April 13, Moody’s says it is taking an “appropriately deliberate approach” during the review process and will conclude when it is “confident” that all relevant information has been received and analyzed. A final review is expected to be completed by end of June.
The action—if taken—reflects the combined pressures from the adverse and prolonged impact of the Euro area crisis; the deteriorating creditworthiness of euro area sovereigns; and the substantial challenges faced by banks and securities firms with significant capital market activities, says Moody’s. As a result, some of the region’s biggest banks could take billions in losses, including Frankfurt-based Deutsche Bank, the Royal Bank of Scotland, UK-based Lloyds, and Switzerland-based UBS and Credit Suisse.
And despite improving fundamentals in the commercial real estate market, a downgrade could impact investor confidence. In its latest strategic outlook, RREEF, the real estate arm of Deutsche Bank, cited European sovereign debt as “of more concern” than political stagnation in the US Congress, noting that Europe will “continue to be a worry” and will, at the very least, have “negative impacts on trade and US banks with European exposure.”
That wave has also trickled down to the Manhattan leasing market. Just a week ago, Michael Geoghegan, vice chairman of consulting at CBRE, said at a media briefing that many tenants in the market are taking a “wait-and-see” approach before signing a deal or moving to a new space due to the uncertainty in the marketplace.
In turn, investors are staying conservative. Michael Shields, managing director of ING Real Estate Finance (USA), previously stated to GlobeSt.com that the company would attempt to maintain a flat balance sheet throughout the year. “We’ve taken a lot of steps since the last crisis began to sell assets and raise capital even with this latest European crisis flare-up,” he stated. “We are in pretty good shape comparatively to all the other European banks. We are not going to be as busy as we’ve been in the past, but we’re still in business and we are still looking at deals and we are still going to be able to do some deals. Not a lot of European lenders can say that.”
But at the same time, Europe is displaying risk and rewards. According to data from Real Capital Analytics, significant commercial real estate transactions totaled $129.5 billion Euros throughout 2011, up 8% from 2010. The research firm found that while institutional investing was slightly down, cross-broader investment went up by 39%.
Given the amount of banks under financial strain, many of the real estate opportunities exist in distressed assets, as banks continue to hold huge balances, RCA notes. As an example, New York City-based Carlton Group, which has offices in Spain, Italy, Greece and Russia, predicts an influx of as much as $10 billion in distress deals. “There are only a handful of institutions lending in Europe now,” said Howard Michaels, chairman at Carlton, at MIPIM. “Of those that are left, they’ll lend only at a 50 to 60% LTV. Our focus is on higher leverage and non-traditional structures.”
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