L.A. County real estate is risky, FDIC reports; California Banking Department survey finds otherwise.

L.A. County real estate is risky, FDIC reports

California Banking Department survey finds otherwise

To rebut a Federal Deposit Insurance Corp. report that Los Angeles County is one of the riskiest real estate markets in the country, the California Department of Banking last month issued a study concluding that the overall financial strength of banks headquartered here is sound.

Of 84 state-chartered banks in Los Angeles County, 66 received satisfactory ratings by the Banking Department in each of five categories: capital, assets, management, earnings and liquidity. The remaining banks need improvement in at least one of these areas.

John Paulus, deputy superintendent of the department, declined to name which banks failed to make the grade.

Compared to five other California counties listed by the FDIC as risky real estate markets, Los Angeles County fell in the middle.

The worst performer was Orange County, where 12 out of its 23 state-chartered banks fall short in one of the surveyed categories. The other county which under-performed the state average is San Diego County. Riverside, Sacramento and Santa Clara counties exceeded the state average.

Statewide, 27 percent of state-chartered banks are deficient in one or more categories.

The study also indicated that 78 of the 84 state-chartered banks in Los Angeles County are profitable. The percentage of profitable state-chartered banks is higher in all the other California counties except Santa Clara.

The Banking Department prepared the report to demonstrate that the state's real estate economy, and therefore its banks, are healthier than suggested by an FDIC study.

The Banking Department study found none of the banks in Los Angeles and the five other counties had problems solely attributable to real estate related activities.

In fact, the study seeks to demonstrate that the banks' real estate portfolios are performing well. Real estate delinquencies for Los Angeles County state-chartered institutions were 3.02 percent of their total real estate loans, slightly better than the statewide average of 3.04 percent.

When federally chartered banks are included, California had a lower rate of non-performing loans than six other states the study surveyed: Arizona, Texas, Massachusetts, Connecticut, Alaska and New York.

Even if the real estate market bottomed out, banks in the county might be less affected than elsewhere in the state, according to the study. That is because real estate loans accounted for a smaller percent of their loan portfolios. The ratio of real estate to total loans was 47 percent for Los Angeles County, compared to 52 percent for the state.

The study points to other factors which help minimize the risks associated with real estate lending in California, such as loan to one borrower limitations.