'Watching the Hillside Burn'
For more than a week, fires have raged around Los Angeles. As of Thursday morning, 24 people died, 40,695 acres have burned and over 12,300 structures — homes, offices, historic sites — were lost, according to Cal Fire, a state agency. The Hollywood sign remains unscathed, despite fake images circulating on social media.
“From my home, out my front window, I was watching the hillside burn the other night,” says Christopher Del Moral-Niles, chief financial officer at $74 billion East West Bancorp. When we spoke on Tuesday, the bank’s Pasadena headquarters was 3.5 miles from the fire line.
The fires are among the most destructive in the state’s recorded history. The impact of the disaster, including credit losses, won’t be understood for weeks, according to a Jan. 13 note from Janney Montgomery Scott. First responders are trying to get the fire under control; regulators this week also encouraged institutions to work with affected borrowers, delaying recognized losses.
East West estimates minimal impact so far, with a “couple dozen” properties located in fire zones, Del Moral-Niles says. With an average loan-to-value for mortgages of 51% and land value that accounts for roughly half that of a property, “there’s more than enough coverage for us,” he adds.
Recovery will take time. That effort could be complicated by a shrinking workforce and competing infrastructure projects as Los Angeles prepares to host the Olympic Games in 2028, according to Janney.
Further pressuring the California real estate market is a strain on insurance. It’s a problem that preceded the fires, says CVB Financial Corp. CEO David Brager. Insurers have dropped customers in California and other states in response to rising losses, according to a December 2024 Senate Budget Committee report. The $15 billion bank based in Ontario, California, which has around 114 loans in the fire zone, obtains force-placed insurance — a more expensive policy — on collateral property when the borrower’s coverage is insufficient, has lapsed or can’t be secured.
Natural disasters — fires, hurricanes and the like — continue to get more expensive. Last year was the fourth-costliest on record, according to the National Oceanic and Atmospheric Administration, at $182.7 billion. Of the 20 most destructive fires listed by Cal Fire, 15 occurred in the last decade.
The industry will help rebuild after these more frequent disasters. But they also represent risks banks will need to address.
• Emily McCormick, vice president of editorial & research for Bank Director
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