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Corus: A Condo Lender Hangs Tough

Corus Bankshares is hurting, but it's still in the black (barely) and hoping for a rebound

For a notoriously tightfisted banker, Robert Glickman proved to be quite the high-roller the past few years. The longtime chief executive of family-controlled Corus Bankshares (CORS), the sixth-largest Illinois-based bank, bet big on real estate in such spots as Florida, California, and, yes, Las Vegas. As Glickman backed condo and other construction, he amassed some $7.6 billion in commercial real estate loans and construction commitments, amounting to a huge chunk of Corus' $8.9 billion in assets. Giddy investors cheered him along, tripling Corus' stock price between 2003 and 2006.

Nowadays, however, Glickman is throwing snake eyes. Corus has become a poster-child for the real estate crunch. Its stock, worth nearly $33 a share adjusted for splits in early 2006, has skidded to $11. Earnings have plunged so sharply that Glickman, in his yearend report, called the period "clearly the worst quarter we have seen in many, many years." The bank's fourth-quarter profit: a scant $1.9 million, down 96% from $47.2 million a year earlier.

Swift Shift in View

The CEO, whose family owns about 40% of the shares in Corus, claims he's "confident" about Corus' ability to weather the storm. But Glickman, 61, who declined to comment for this story or to make other executives available, is also striking some unusually dark chords, noting in a statement that the bank is looking on new business "with a cautious, even pessimistic, view of the markets." Certainly, such gloominess is not surprising for a bank whose assets have shrunk by more than $1 billion in the past year.

What may be surprising, however, is how quickly Glickman's tone has changed—a shift that mirrors the swift slide in the real estate sector nationwide. As recently as October, in reporting the bank's third-quarter results, the CEO was predicting a recovery in property values, even if he couldn't say when it would happen. Citing the bank's standing as "an expert in this niche," he wrote, "we are bullish that in the long run, condominiums and condominium construction will remain a permanent fixture…. We are very well-positioned to capitalize on the eventual housing recovery that we are confident will occur."

Corus had good reason to be bullish as it burst into markets far from its North Side Chicago roots, where it could easily be mistaken for just another neighborhood bank. The 50-year-old institution has been led by the Glickman clan since 1966, when Glickman's father, Joseph, who is still chairman, acquired it with a group of investors. The younger Glickman, who took over as CEO in 1984, built up the company by buying a series of local banks and turning Corus into a national lender for high-rise and condominium construction. Commercial real estate lending accounted for just 40% of its loan portfolio in the mid-1990s. By the end of 2006, Glickman, looking well beyond Chicago, had ratcheted that above 98%. Today, a third of Corus' real estate portfolio is in Florida, another 18% in California, 8% in Atlanta, and 6% in both Vegas and New York. Chicago accounts for just 5%.

A Cyclical Turn?

The bank, which rewarded some executives with six-digit bonuses last year after 2006 proved to be Corus' best year ever, is hardly the only player suffering. Bigger banks are writing off billions of dollars, mainly because of investments in mortgage-backed securities, which Corus wisely avoided. The Chicago bank last year set aside $66 million for loan losses, including more than $40 million in loans secured by condos. It also listed $282.6 million in past-due loans in the fourth quarter, up 2 times from a year earlier. For all of 2007, the bank earned $106 million, down 44% from 2006's record profit. Says analyst Daniel Cardenas of Chicago broker Howe Barnes Investments: "The wheels of the truck haven't fallen off yet, but they've been hit hard."

As every real estate veteran knows, the market is cyclical and could eventually turn in the bank's favor. Ronald Peterson, an analyst in Chicago for Sterne, Agee & Leach, a Birmingham (Ala.)-based brokerage, argues that Glickman's gamble may one day pay off—if people who signed contracts for condos pony up the promised dough. "The $64,000 question is, do these investors show up and close the deal at the price they agreed to? Then Corus is fine," Peterson says. "But if they walk away, Corus would be on the hook."

Despite the collapse of once-hot condo markets, Corus isn't abandoning the game. It says it expects to lend as much as $1 billion more in the opening quarter of this year, which would equal half the new loans it made for all of last year. And much of that will be in the condo market, even as Glickman warns that foreclosures could prove to be the bank's "best course of action" for some clients.

Is real estate a smart place to be now? Plenty of investors don't think so. While the Glickman family and other insiders are showing their faith by holding onto their shares, some 21.1 million Corus shares were shorted in January. That means these investors are wagering the stock will sink further. Given that the Glickmans own 22.1 million shares, the sorry total of shorted stock adds up to two of every three shares publicly available. For now, the pessimists reign.

Ferkenhoff is a contributor for BW Chicago .

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