In a WSJ article, When Buildings Empty, Banks’ Credit Woes Pile Up, we find out that the regional banks recent rally, may be short-lived.

As banks start releasing fourth-quarter earnings this week, the losses and reserves tied to commercial real-estate loans could spike even higher than some analysts think. Regional banks could get hit hardest, given typically greater exposure to commercial property than their bigger brethren.

• RENTS: January ‘10, Reis Inc., a market research firm, announced sharp declines in rents and occupancies in all property classes, giving landlords less cash flow to service debt.
• DELINQUENCIES: Foresight Analytics estimates delinquencies on commercial real-estate loans held by banks will rise to 9.47% in the fourth quarter, up from 5.49% a year earlier.

But nasty surprises could be lurking if Associated Banc-Corp.’s fourth-quarter ‘09′S earnings are any guide. The Wisconsin bank on Monday said the company took “additional steps” late in the quarter to perform a more extensive review of “criticized loans,” particularly on its construction and other commercial-property debt.

Blaming commercial real estate primarily, the company recorded credit-related charges of $405.1 million in the quarter, up significantly from $95.4 million for the third quarter and $65.0 million in the year-earlier period.

Commercial real-estate woes also bode poorly for regional banks because their businesses before the crisis relied heavily on the sector for profits. Even if the economy improves and the delinquency rate drops, they’re likely going to be deprived of an important earnings source for years to come.

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