NEW YORK - October 12, 2009 - The next big headache for banks is likely to be commercial real estate and analysts expect big losses and another wave of bank failures to result.

Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15% of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks are better diversified.

The banks that analysts say could risk big losses include Salt Lake City's Zions Bancorp, Columbus, Georgia- based Synovus Financial Corp. and Dallas-based Comerica, Inc.

But it is not just earnings that are at stake - bank failures could surge in the coming quarters.

"The serenity of the quiet closure of two to three banks per week is soon going to come to an end," said George Ball, chairman of Sanders Morris Harris Group, an investment bank and investment adviser, in Houston, Texas.

Banking regulator Federal Deposit Insurance Corporation had 416 banks on its watch list of problem banks at the end of the second quarter and veteran analyst Dick Bove at Rochdale Securities expects another few hundred will fail in the next few quarters.

The FDIC closed Chicago-based Corus Bank on September 11, following losses on commercial real estate and condominium developments in Arizona, Kalifornia, Florida and Nevada.

At Warren Bank in Michigan - closed on October 2 by the FDIC - almost 40% of its $395 million in total loans were in commercial real estate.

"Real estate lending has long been the specialty of Warren Bank," the company still claims on its website.

Analysts are worried banks such as Corus and Warren Bank may be just the first of a coming wave of bank failures due to commercial mortgages.