Real estate issues will sink banks

Private-equity billionaire J. Christopher Flowers says continuing problems in U.S. real estate will force the government to shutter 200 to 300 more banks.

Flowers, whose specialty is investing in financial services, delivered the sour real estate news to members of the Forum Club of Southwest Florida in Naples recently.

Nationally, Flowers says he expects home prices to continue falling. “In the short run, this will get worse,” he says. That's because the recent lull in foreclosures will rebound after banks straighten out their documentation problems.

In addition, Flowers expects continued pressure on commercial real estate owners as they struggle with tenants and lower values. Over half of U.S. banks' health is tied to real estate, making them vulnerable to the continued real estate weakness.

Of the 860 banks now on the government's “problem list,” Flowers says regulators will close 200 to 300.

But take comfort that the U.S. is not like Spain, which Flowers says has a worse real estate crisis on its hands. “The whole country is like Las Vegas,” Flowers joked.

Except for the glitz and glamour.