Small Banks Face Potential Subprime-Related Losses

Baltimore–Smaller banks–such as Provident Bankshares Corp. of Baltimore–may experience some of the losses that larger banks have suffered during the subprime crisis, according to The Wall Street Journal.Provident posted a $17.6 million quarterly net loss last week after cutting its dividend and issuing $115 million of new securities to fix a balance sheet filled with real-estate securities. Plainfield, Ind.-based Lincoln Bancorp.’s first-quarter $181,000 earnings were lower than previous forecasts because more than a dozen borrowers–including commercial real estate developers–showed difficult financial conditions.During the economic boom, many small- and mid-sized banks started working in new markets and offered new products; some gave low rates or relaxed terms to increase lending.Many regional and local institutions weren’t exposed to the complex mortgage-backed securities that caused larger banks problems; but falling home prices and the slowing economy places smaller banks at risk.Housing market troubles have caused large U.S. banks to suffer; but some analysts and investors say they’ve made progress in reducing their losses. As a result, stocks rose Friday after Citigroup announced a $5.1 billion first quarter loss a day after Merrill Lynch posted a nearly $2 billion loss.