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How zombie banks and failing commercial real estate are impacting local economies

By       Message Ted Newcomen     Permalink
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News of ongoing problems with Delaware's biggest bank, Wilmington Trust will only increase local concerns about the future viability of a stalled commercial development at 601 Washington Avenue, Chestertown, on the Eastern Shore of Maryland.

Known by town residents as the "see-thru building' due to the lack of internal finishes, the project has literally taken years and is still not complete. Latest efforts include landscaping with a selection of trees & shrubs, many of which have expired due to lack of care. Current County property taxes owed are almost $13,400 and $350 is still delinquent from last year

Formerly the site of Black-eyed Susan's Restaurant which was sold to the developer, BBC Properties, Dover, DE for $1,320,000 in October 2007, the project was financed through Wilmington Trust.

Wilmington Trust is currently seeking a capital injection of funds from private equity firms as it hustles to raise capital in the face of its continued credit problems. If this fails, then the company, originally founded by the Du Pont family, may have to put itself up for sale.

An analyst commenting on this week's report to clients issued by Janney Capital Markets said "we fail to see', how WT, "with serious asset quality issues, seeking to sell itself after a regulatory exam, can command a premium'.

Another financial/business blog had a statement by a WT stockholder and former employee who admitted the bank's "credit skills have been less than appropriate'. The blog also suggested that selling off the trust and investment divisions and reinvesting funds in the commercial banking side would support "the huge losses that they have incurred and probably will continue to incur, from the overly aggressive real estate lending that the bank did, inadvisably, over the last several years.'

However, if the bank has to be sold, Richard Bove, an analyst with Rochdale Research, warns that the whole thing is a crap shoot and that anyone interested in a struggling business like Wilmington Trust has to have faith that the auditors and regulators have produced accurate figures.

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Wilmington Trust has not exactly covered itself in glory recently. During the market collapse in 2008, WT received a $330 million bail-out from the tax-payer funded TARP program. So far the bank has failed to pay back ANY of that money but has managed to reward its executives with $31.5 million in bonuses.

This is despite the bank suffering five straight quarterly losses and has seen its share price driven down 70% in the last three years. Last year the bank cut its quarterly dividend to a mere penny. In March 2010 a share sale raised $274 million but this appears to be insufficient to save it from losses on commercial real estate loans and on investments in pools of trust-preferred securities issued by other financial institutions.

It is believed that tax-payers via the Federal Reserve Bank's opaque bailout program are currently supporting the $3 trillion commercial real estate industry. Thus allowing banks to roll over non-performing CRE loans and keep inflated assets on their balance sheets instead of realizing a loss. Truth be told, many banks are actually insolvent & would fail today if they had to mark to market the real value of their CRE debts.

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Rumors put about last year by the developer & repeated by local economic development officers suggested that Verizon would be leasing part of the Washington Avenue building. A restaurant was also touted as another potential occupant.

A banner on the front of the building currently advertises the property for rent with KLNB Retail. However, their website, www.klnb.com, does NOT appear to include the unit among those listed as available for lease or even sale. Phone calls to the leasing agents only appear to connect with answering machines. A spokesman later said he was unaware of the problem & it must have been an "oversight'.

The owner of the project Michael Zimmerman of BBC Properties in Dover, Delaware also appears somewhat illusive. His office phone only appears to be manned with an answering machine.

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Ted Newcomen is a citizen-journalist - someone who is tired of the lazy 'lamestream' media circus which is obsessed with the cult of celebrity and just recycles press releases for the establishment.

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