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Sandcastle Bust Signals Pain at Banks as BP

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Sandcastle Bust Signals Pain at Banks as BP Spill Hits Florida
June 09, 2010, 7:42 AM EDT

June 9 (Bloomberg) -- Just as Gulf Coast banks were beginning to rebound from hundreds of millions of dollars of losses on real estate, a wave of toxic goo approaching the Florida Panhandle may smother some of their progress.

Regions Financial Corp. and Synovus Financial Corp. are among lenders dominating the region whose shares are trailing industry benchmarks. Synovus, with 26 branches in the Panhandle, has dropped 33 percent following BP Plc’s April 20 offshore oil well explosion, which killed 11 workers. Regions, the market leader with 48 branches, declined 19 percent. During the same period, the KBW Bank Index fell 16 percent.

Investors are backing away on concern that the coastal economy will suffer as homes go unsold and tourists cancel bookings for hotels, restaurants and fishing charters. About 21 percent of Florida’s taxable sales are tied to tourism, according to the Partnership for Florida Tourism, a trade group.

“This issue might freeze up the market for sales along the Gulf Coast,” said Kevin Fitzsimmons, an analyst at New York- based Sandler O’Neill & Partners who covers Southeast banks and has a “hold” rating on Synovus and Regions. “For most it will be highly isolated, but if it comes into Florida in a big way, that could imply another leg down in real estate values.”

With tar balls washing up on Pensacola, property sales are being renegotiated and buyers are delaying bids, said Theo Baars of Baars Real Estate Services LLC, whose family has marketed property in the city since 1946.

Tourism is taking a hit, too, with only one-fifth of the usual number of people attending the annual sandcastle contest last weekend, Grover Robinson, chairman of the Escambia County Commission, said at a Monday press briefing. The county includes Pensacola, located about 200 miles east of New Orleans.

Silent Phones

“The phones are not ringing,” Robinson said of hoteliers and restaurateurs. State and local officials so far are keeping the beaches open because the tar balls aren’t everywhere and are being cleaned up within a couple of hours, Robinson said.

Even before BP’s well began spewing oil into the Gulf of Mexico, lenders based in the state reported 7.7 percent of their loans weren’t paying interest in the first quarter. That compared with 5.5 percent nationally, according to the Federal Deposit Insurance Corp.

Twenty-two of the Panhandle’s 37 community banks lost money in the first quarter, while 12 had more loans that weren’t paying interest as of March 31 than their total reserves and tangible common equity, according to Carson Medlin Co., an investment bank in Tampa specializing in small financial firms.

‘More Pain’

Whitney Holding Corp., a New Orleans-based bank that lends to the oil and gas industry with 10 Panhandle branches, has 15 percent of its loans and 57 percent of its nonperforming loans tied to Florida. The stock fell 30 percent since the day after the BP spill began.

The disaster has fueled declines in the region’s bank stocks, Fitzsimmons said, and lenders “certainly could have more pain in those markets than they wanted to have,” said Peyton Green, an analyst at Sterne Agee & Leach Inc. in Nashville, Tennessee.

SunTrust Banks Inc., which has dropped 17 percent after the explosion, and Regions, based in Birmingham, Alabama, were among lenders whose first-quarter reports cited improving prices for distressed condos and other real estate, reflecting increased buyer confidence. Almost 30 percent of Atlanta-based SunTrust’s residential construction and mortgage business and 38 percent of its home-equity loans are in Florida. Home prices stabilized this year after declining in some resort towns by more than 60 percent from 2005 peak levels, Baars said.

Banks’ Prognosis

Gregory Hudgison, a spokesman for Columbus, Georgia-based Synovus, didn’t comment. Michael McCoy of SunTrust said the bank is “very concerned about our teammates, clients, residents and others,” and is “watching the situation very closely.” Trisha Carlson of Whitney said the lender “will continue to review any potential impact on our loan portfolio from the oil leak, but until this event plays out fully it is still too early to tell what that impact may be.”

Government-assisted takeovers of Panhandle community banks seem certain, Sterne Agee’s Green said, though regulators “don’t have the capacity to handle them all in a short time period.”

Before oil began washing ashore, discounts helped the Pensacola-Panama City area to its strongest Memorial Day holiday weekend in five years, said Jim Donatelli, Regions’ Pensacola city executive. Demand for beach property in Destin started picking up last year and some properties had recently seen bidding wars, said Mary Anne Windes, president of the Emerald Coast Association of Realtors in Fort Walton Beach.

Signs of Strength

Only one real-estate transaction involving Regions was delayed from closing in the past 45 days because of worries over the oil, and it was concluded within a week, Donatelli said.

“We’re fighting the hype, which is a big risk given how important tourism is as a big driver of our community,” he said. Windes said the beaches are still white and the publicity is just a “black eye” that will “heal and be as good as new in a short time.”

Real estate agents in resort towns including Panama City Beach and Fort Walton Beach are reporting more cancellations than Pensacola, which has about 21,700 jobs tied to the Naval Air Station, four hospitals and two colleges, said David Wilhite, president of the Pensacola Association of Realtors.

“If more oil comes ashore, it’s obviously going to affect our sales,” he said. “Our condo sales had been increasing some earlier this year, but I think people will be taking a second glance now.”

--With assistance by Mary Ann Credeur in Atlanta. Editors: Rick Green, David Scheer

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net.

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