The Coming Bank CRE Crisis

[Lemon Thrower]

Chart shows nominal and percent-of-assets exposure to CRE.

Watch out for M&T and Wells Fargo, Citizens, and Zions who have relatively high percentages.



https://www.zerohedge.com/markets/visua ... e-exposure

[silverflake]

Nice chart! Scary predicament.

So, what's next?

Keep stacking!

[Lemon Thrower]

What's next is you are going to hear a lot about this soon. Its worse than SVB - that was a case where banks bought bonds paying say 3% and the market rate zoomed to 6%, roughly devaluing their holdings in half. From an accounting perspective they don't have to fess up to the loss as long as they intend to hold the bonds to maturity. CRE is similar with the key difference being that in a lot of cases they can't hold the loans to maturity. That's because there are a lot of renewals coming due. The tenants can't afford interest at the market rate, and the banks can't afford to subsidize the ownership of buildings that in many cases are worth half as much as when the loans were extended. This is a quirk of CRE financing - unlike residential where you lock in a loan for say 30 years, CRE often has a balloon payment in 5 or 10 year, requiring the owner to refinance.

You are going to hear about some big losses in dollar terms but the real risk is in percentage terms. Poop will hit the fan late June early July when stress test results are published.

[pmbug]

...
Of about 4,000 U.S. banks analyzed by consulting firm Klaros Group, 282 institutions have both high levels of commercial real estate exposure and large unrealized losses from the rate surge — a potentially toxic combo that may force these lenders to raise fresh capital or engage in mergers.
...

https://www.cnbc.com/2024/03/19/where-c ... re-ma.html

[shinnosuke]

Another unintended consequence of many employees suddenly working at home starting in 2020?

[Lemon Thrower]

Another unintended consequence of many employees suddenly working at home starting in 2020?

Yes, to some extent, but more a function of the Politburo setting rates too low for too long. Commercial real estate was over built. Now, when rates went up, the fact that it was overbuilt is obvious.

[shinnosuke]

Yep, future demand was massively "pulled forward" by the rates being artificially too low. Now the normal demand just doesn't exist.

New article on ZH:
https://www.zerohedge.com/markets/goldm ... rowed-time

[Lemon Thrower]

Gold, silver and oil rallying. Gold and silver were due, but oil rallying in the face of slowing demand and a $40-50 pull rate for US fracked oil is a head scratcher.

I think some people know what's coming in banking. Just a guess.

[68Camaro]

It suggests a larger non-US loss of faith in the dollar such that some are converting dollars to commodities, including but not limited to central banks. Enough that they are affecting price of the commodities. That said, the US dollar itself seems like it is being propped up to stay over 104, which flies in the face of a loss of faith. I wonder how long this can keep up. I feel like we're seeing two diverging paths.

May you live in interesting times... we certainly are

[pmbug]

... but oil rallying in the face of ...

FWIW:

https://twitter.com/RevShark/status/1775961967905161254

[Lemon Thrower]

I think that's it pmbug - expected action in the middle east.

[Recyclersteve]

For someone with exposure to the stock market who would like to profit from the above scenario, you can do one or even all of the following:

1) Selling one or more stocks short and profiting when they collapse;
2) Buying long put options; and
3) Selling naked call options (a higher risk level and many brokers want to test you to make sure you have the smarts and capital to back you up before they will allow you to trade naked options).