Outlook for the ‘90s : ...

The biggest question for the nation’s lenders as they start the new decade is how bulletproof they are to the nation’s growing real estate recession and, to a lesser extent, problems with loans that financed corporate buyouts.

Banks across the country, especially in New England and Arizona lately, are being hit hard by spreading problems with real estate loans made to builders, developers and homeowners.

What about California? A number of banks in the state, particularly Wells Fargo, have bet heavily on California real estate. Optimists contend that California’s economy is more diverse than in other states and that overbuilding has not occurred. Pessimists note that New England and Arizona were sure bets before they unraveled and that California’s skyrocketing home prices in the 1980s will cool the market in the 1990s.

Concerns are also being raised about the quality of bank loans that financed leveraged buyouts--where companies are bought with debt paid off using cash from operations or asset sales--in the wake of problems with some deals and concerns about a possible recession. Wells Fargo is one of the nation’s largest lenders for buyouts. Bankers argue, however, that concerns about the buyout loans are exaggerated, and they note that banks would be first in line as creditors to recover their money should a company fail.

Three of California’s four largest banks--First Interstate, Security Pacific and Wells Fargo--may well change leaders in the next year or two; top executives of each are expected to retire.

Japanese banks will continue to make inroads in California. Dai-Ichi Kangyo, the world’s largest bank, may well expand its operations in the state in 1990 after buying control of Manufacturers Hanover’s CIT finance unit. In addition, some banking experts believe that Japanese banks may buy large, minority stakes in California banks that need a capital infusion and also desire anti-takeover protection.