Top-ten mortgage originator U.S Bank (UBS) is passing on commercial real estate opportunities in certain markets at risk of overheating because of new construction.
Speaking Wednesday on a conference call, Chief Executive Richard Davis said U.S. bank is walking away form commercial real estate deals in markets where the housing stock is too high. The bank determined this position after considering foreclosed properties await placement into the marketplace and an impending construction boom of multifamily properties.
“We are not engaging in overheated markets like Boston and Chicago,” Davis said. “We just think it’s just too risky. We are passing on opportunities not because the credit quality doesn’t look good. We just the future as we see it won’t be strong enough to account for.”
Commercial mortgage and construction and development nonperforming assets declined nearly 50% in the second quarter from a year earlier, as the Minneapolis-based bank continued to resolve and reduce exposure to problem assets.
U.S. Bank reported on Wednesday a profit of $1.42 billion for the second quarter, or 71 cents a share, beating analysts’ estimates of 69 cents, according to Zack’s Research. A year ago, the bank earned $1.2 billion, or 60 cents a share.
About $67 billion of new lending activity contributed to second quarter gains, including $36.7 billion of new and renewed commercial and commercial real estate commitments and $28.1 billion of mortgage and other retail loan originations.
On a linked quarter basis, U.S. Bank’s average total loans grew 1.9%, slightly higher than the linked quarter growth it experienced in the first quarter, driven by commercial loan and residential mortgage. “Our investment in mortgage banking over the past few years was very well-timed, as we posted both record origination volume and revenue in the second quarter,” the bank said in a statement.
Davis said housing markets along the coast are stronger than those in the Midwest where it conducts a lot of business.
“For us the growth you’re seeing is an extension of invitation by customers that we’ve not worked with before and current customers reducing the number of banks they’re using in giving us first shot in many cases to have a higher position,” Davis added.