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These aren't the best of times for banks. The mortgage business has really cooled off. And people seem to be cutting back on other forms of borrowing, as the economy slows down. 

Meanwhile, rising interest rates mean banks have been having to pay depositors more for their money. But these are far from the worst of times for banks.

And there's no indication risky mortgages will topple Minnesota's biggest banks. 

"They'll certainly survive," says Virginia-based banking industry consultant Bert Ely. "It's not going to cause anybody to fail."

Indeed, some non-bank lenders made mortgage loans to people who weren't very good bets to pay the loans back. But Ely says the nation's banks pretty much steered clear of making those loans.

"Banks and thrifts in the country have done a good job in recent years in taking only the stronger subprime credit risks, and not engaging in some of the really dangerous, almost stupid, underwriting that was done by  some of the non-bank firms," says Ely.

TCF's lending business is highly concentrated in home equity loans. But Ben Crabtree, a banking analyst with Stifel Nicolaus, says TCF makes sure the loan amount is safely smaller than the value of the home. 

"TCF historically tends to write mortgages at a relatively low loan-to-value ratio," says Crabtree. "So if the real estate values go down some, it's not going to really impair their situation."

Crabtree says TCF knows that if a loan goes into default, the bank can get its money back by foreclosing -- if it comes to that.

In the second quarter of this year, TCF earned $62 million. That was was down about 7 percent from the same quarter last year.

The Wayzata-based bank has increased reserves for possible losses on housing and commercial loans. But Crabtree says anybody in the business of making home loans is facing tougher times.

"The demand for housing is retreating to more normalized levels," says Crabtree. "And that means TCF, like anyone else extending credit in the housing area, is going to see less turnover, less appreciation, less willingness of borrowers to go out and borrow money against their homes. But that is different than saying they have a major amount of risk. I don't see that they have a major amount of risk."

The situation is a bit different at Minneapolis-based US Bank. The nation's sixth largest bank  has some exposure to subprime mortgages. 

Earlier this month, US Bank said two loans to subprime mortgage lenders might go into default. But the bank said the impact would have relatively little impact on earnings.

Thrivent Asset Management analyst Thane Bublitz  says US Bank is rock solid. Bublitz notes the bank earned about $1.2 billion in its most recent quarter. 

"They are definitely a stable institution," he says. "The mortgage revenues they get are only a small portion of their overall revenue. So, they definitely are not totally reliant on mortgages."

Of the three big Minnesota banks, Wells Fargo is the largest employer, and it has the greatest exposure to the mortgage business. Wells Fargo has boasted it's the No. 2 mortgage originator in the nation. 

The bank has some subprime mortgages in its portfolio. But it has taken steps to reduce potential losses on those loans. It's harder now for borrowers with weak credit to qualify for loans. And the bank shut a unit that buys subprime mortgages from other lenders.

In fact, Wells Fargo says late payments on real estate loans declined nine percent during the first half of 2007.

Thrivent's Bublitz says Wells Fargo is in great shape.

"I view Wells Fargo as consistently one of the top performers in the banking industry, because of consistency of results and diversity of revenues," he says. "They are very proactive in managing their risk, and they do everything very well."

Wells Fargo earned $2.3 billion in its second quarter, thanks largely to higher credit card fees.

All the banks got some good news from the Federal Reserve Tuesday, when the Fed cut a key interest rate by a half-point. 

The Fed's action will lower borrowing costs for banks, and millions of consumers and businesses. But it will also mean lower interest rates for depositors.

Foreclosure crisis is not easing in north Minneapolis

The mortgage credit crunch

House committee gets earful about predatory lending

Housing market lukewarm

Proposed change in bankruptcy law could thwart  foreclosures

Head of bankers association questioned on subprime loans

Business and Economic News

Martin Moylan

Author

There's a lot of talk now about lenders getting hurt by bad mortgage loans and the slowdown in housing sales, not to mention the subprime crisis. But Minnesota's three largest banks --TCF, US Bank and Wells Fargo -- seem to be in pretty good shape.

Despite subprime woes, Minnesota banks in good shape

Go Deeper.

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