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Geithner sees commercial real estate loans as problematic

WASHINGTON - Mounting losses from commercial real estate loans will continue to be a problem for the United States and especially smaller banks, but it can be managed, Treasury Secretary Timothy Geithner said Monday.

"Commercial real estate's still going to be a problem for the country," Geithner said in a CNBC interview. "But we can manage through this process."

Geithner also said the Treasury Department's announcement that it will begin selling the stake it owns in Citigroup Inc., which could net about $8.2 billion to the government, shows "how far we've come" in exiting from the financial bailout program.

While losses on mortgage loans socked banks at the beginning of the 2008 financial crisis, it is commercial and development loans that have brought dramatic losses for banks in recent months.

Losses have mounted on loans for commercial projects like stores and office complexes, as buildings sit vacant and builders default.

Many midsize and regional banks hold large concentrations of those loans.

FDIC Chairman Sheila Bair has said losses on commercial real estate loans are expected to be the primary cause behind bank failures this year, which are likely to exceed the 140 collapses in 2009.

The agency announced three bank closures Friday, bringing the 2010 total to 40.

One way to help manage the commercial loan distress, Geithner said, is through the $30 billion fund proposed by President Barack Obama to provide money to midsize and community banks if they boost lending to small businesses. The program, which must be approved by Congress, would use money repaid by banks to the TARP program.

Many lawmakers, however, want the $30 billion sent directly to the federal Small Business Administration. It would then decide which businesses should get loans.

Meanwhile, Geithner said Monday that U.S. employers soon may start hiring again.

"The economy is getting stronger," he told CNBC. "We're probably just on the verge now of what we think will be a sustained period of job creation finally."

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