February 28, 2024

A third of the commercial real estate (CRE) loans in their portfolios saw continued stress as many US-based banks continued to experience stress in the sector.

Those who are workers work from home and choose to do so, and this results in a huge blow for homeowners who have borrowed or borrowed money for their property and are suffering from high interest rates and vacant, empty offices. Low and weak office demand could pressure borrowers who have

borrowed to default on their loans and pressure banks and other big lenders, who are praying to avoid selling loans at significant discounts.

But it also happens that those banks have continuously recorded provisions for credit losses and charge offs since  which are driven by their non performing (NPL), or outstanding CRE loans.

This information was given to us by Rebel Coal, they said that this will go on for at least 1 year, NPLs will continue to increase and after that the charge-off is going to be really ugly. He is work as a  professor of finance at Florida Atlantic University.

And one more thing, he said, I’m sure the banks are trying and will continue to try to avoid selling their worst, worst assets because it’s going to force them to write-off very heavily, and the most important reason is that Every property that goes through becomes a comparable sale for appraisers who value it.

Information –

The deterioration in the commercial real estate sector meant that in its third quarter earnings release, Morgan Stanley reported that it had set aside as much as $134 million for credit losses. As much as $161 million was set aside in the second quarter, the bank said that was due to “deteriorating conditions in the commercial real estate sector.”

What’s more, the rest of the bank’s earnings last week showed similar challenges facing CRE holdings, with Goldman Sachs ( GS.N ) disclosing on Tuesday that it had cut its office-related exposure to CRE holdings by roughly 50%. have done

Bank of America ( BAC.N ) said its non-performing loans, or those that are at least 90 days past due, fell from as much as $4.27 billion in the second quarter to nearly $5 billion in the third quarter, according to data reported on Tuesday. It is understood that it has increased to billion. This is what the CRE portfolio is all about.

Another important factor is that borrowers are struggling to refinance their loaned CRE loans, and the same is important because property values ​​have fallen sharply and interest costs have skyrocketed. And real estate data provider Trepp estimates that about $20 billion of office commercial mortgage-backed securities, which consolidate people’s personal loans, are expected to mature in 2023.

According to research by JP Morgan and Citigroup, those regulators are keeping a very close eye on banks’ CRE risk. Big banks such as JPMorgan ( JPM.N ) and Goldman Sachs ( GS. N ) have relatively little exposure to CRE, while smaller regional banks have much more exposure, which has posed many challenges, said JPMorgan. And according to research from Citigroup, it makes sense.

Smaller banks exhibit 4.4 times higher leverage (CRE) of commercial real estate loans than their larger peers. Citigroup found that regional or smaller lenders held 70% of CRE loans,

According to JPMorgan earlier this year. “All these different business lines give these big banks a lot of leverage,” says Mayra Rodríguez Valladares, a bank and capital markets risk consultant. What he means is that “once you start becoming regional and once you start becoming a community bank, all of that business lacks diversity.” Mayra Rodríguez Valladares, a bank and capital market risk consultant, said: There has been an increase in net and only charge-offs on the CRE i.e. Commercial Real Estate portfolio. And as of Oct. 13, the bank reported net CRE, or commercial real estate loan charge-offs, of nearly $93 million, compared with a whopping $79 million in the second quarter and a whopping $17 million in the first, all Wells Fargo ( WFC.N ) said in the previous quarter.