by Deby Glidden,
Managing Partner,
Core Point Partners, LLC

The real estate collapse resulted in the greatest number of bank failures since 1992. Residential values are creeping upwards, but capital erosion has hampered bankers' ability to deal with problems in Commercial loan portfolios which have maturities in 2010-2012.

Lenders have addressed problems of the largest, SEC-monitored Commercialcustomers, with many of the private, middle market ignored. The reality is "extend, amend, and pretend" due to the capital shortfall, with capital insufficient to write-down loans to move them out at discounts. Bank workout groups are paralyzed by the volume of problem loans. These issues must be addressed soon.

Fair value accounting will put pressure on lenders to mark-to-market loan portfolios, taking losses as capital allows. Banking consolidation will continue and the strongest can cherry-pick the best deals. Companies will continue to fail well into the economic rebound as they run out of liquidity. Cash will be king for all buyers, and Distressed PEGs will have the advantage. Acquisitions with 50% equity from PEGs will continue into 2010, with leveraged recaps not occurring until later.

Middle Market activity will be strong in 2010 for those with Distressed experience,as the lending paralysis unwinds.