Union Bank Will Set Aside $90 Million

Union Bank, the state’s fifth largest, said Thursday that it will set aside $90 million for potential losses after an intensive review of its real estate loans, providing further evidence of the commercial real estate problems hampering the state’s banks.

Union, the state’s largest Japanese-controlled bank, acknowledged that the action was taken because the state’s commercial real estate market is weakening, especially in Southern California.

The action followed a special review the bank made of its real estate loans in conjunction with independent consultants. A Union spokesman said the problem loans tend to be on “mature” buildings, such as small, older office buildings that lack tenants.

The bank did not predict its third-quarter earnings, except to say profits would be “nominal.” Union said it will classify as non-performing $155 million in loans, including $135 million in real estate loans.

Union’s move foreshadows similar action expected over the next few weeks at other major banks in the state.

Real estate problems have started surfacing increasingly among California banks, historically among the nation’s most profitable.

Bankers and analysts believe that most banks will be forced to set aside significant amounts of money to cover potential problems on real estate loans, which will result in the posting of thin profits and some losses.

Union is controlled by Bank of Tokyo.

Senior Union Bank executives declined to elaborate on the announcement. In a statement, Chief Executive Taisuke Shimizu said that Union “has promptly taken the necessary actions.”