GCM Capital’s Post

Anyone hoping for a bank lending comeback to revitalize the commercial real estate debt market got some disappointing last week. U.S. bank regulators proposed a new set of rules that would impose stricter capital requirements on banks, requiring them to hold more assets for each loan they hand out and preventing them from using their own internal risk models. Though it will be years before a finalized rule takes full effect, it still discourages banks from the behavior that several sectors of CRE had depended on for years. The new proposal from the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. would apply to all banks with more than $100B in total assets. “The large increases in capital standards will likely stunt macroeconomic growth and reduce banks’ participation as single-family and commercial/multifamily lenders, servicers, and providers of warehouse lines and mortgage servicing rights financing,” Mortgage Bankers Association CEO Bob Broeksmit said. #cre #realestatelending #mortgagebankers

11 February 2024 Source(s) : Bloomberg News / FT Shadow Bank Loans Top $1 Trillion as US Regulators Warn of Risks Banks’ lending to non-bank financial firms has steadily risen Janet Yellen said this week that officials are monitoring risk. The amount that US banks have loaned to so-called shadow banks surpassed the $1 trillion mark, according to Federal Reserve data, even as regulators warn of potential risks to the financial system. The Fed reported Friday that lenders crossed the threshold in loans outstanding to non-deposit-taking financial companies such as fintechs and private credit investors at the end of January. The figure was about $894 billion a year earlier, the data show. Read more: US Lays Path for More Financial Giants to Get Fed Oversight Treasury Secretary Janet Yellen said this week that US regulators are monitoring risks stemming from nonbank mortgage lenders, and cautioned that a failure is possible if the market strains. Regulators have been warning that oversight hasn’t kept pace with the significant expansion across finance of nonbanks’ footprints. Unforeseen risks may be lurking as the firms have grabbed more market share, while their ties to traditional lenders have become more complex, officials have said. ****************

More trouble for Banks, and #cre. #blackacrelaw #blackacreadvisors #npl #pinkacre #fdic #texasratio #inflationreductionact #cmbs #distressedproperty #nonperformingloans

SHOCKING NEWS: commercial real estate (CRE) loans could be an issue for community and regional banks. Shockers. News?!? When management can’t grow a bank organically, the bank takes on higher risks and brags about how it’s smarter, more responsive and more flexible than its larger competitors. CRE loans are the best source of this loan growth due to the relative size compared to commercial loans and small business loans. And the deterioration of a CRE portfolio lags other portfolios because the underlying source of repayment is long term real estate leases. I can point to at least two community banks that closed CRE office loans outside their core market in order to grow the balance sheet. The sales side of the bank starts compensating lenders to close loans regardless of the risk profile. Here’s the bottom line: there are simply far too many banks in this country and too little loan demand. Without loan growth, community and regional banks cannot grow which leads to desperation which leads to excessive risk taking and ill-conceived strategies. These strategies can include partial bank acquisitions, geographic expansion and excessive investments in new product lines. Consolidation is the answer. Just my opinion (based on 45 years in commercial banking.)

Over exposed? 🤔 “Nearly 1,900 banks with assets less than $100 billion had CRE loans outstanding greater than 300% of equity …” Fitch Ratings / Reuters via Apple News ‘Real estate pain for US regional banks is piling up’ “Fitch, in a detailed report in December, also said if prices decline by approximately 40% on average, losses in CRE portfolios could result in the failure of a moderate number of predominately smaller banks.” “Investors predict that some regional banks could be forced to sell loans at a loss or increase provisioning for losses” “But selling loans may not be an optimal solution with properties now valued 50%-75% below their valuations at the time loans were struck, said Rebel Cole, a finance professor at Florida Atlantic University.” "The regional banks ... (are) doubly more exposed to rates," said Daniel Zwirn, co-founder and CEO of distressed debt investment firm Arena Investors, LP, who is avoiding real estate for the next year or two, citing in part higher risk of default.” “The KBW Regional Banking index (.KRX) is down around 11% ...” 🍀🍀🍀

���� As we navigate the evolving landscape of commercial real estate, it's crucial to understand its impact on our financial institutions. Recent data reveals that delinquent commercial property loans among the six largest U.S. banks nearly tripled to $9.3 billion in 2023 due to high vacancy rates and increasing borrowing costs 📈 🔍 Today, regulators are paying closer attention to this sector as potential risks to bank stability grow. Interestingly, for almost half of all U.S. banks, commercial real estate debt is their largest loan category 💼 While these loans are more concentrated among smaller banks, several major financial institutions have built substantial portfolios in commercial lending. The graphic below shows the exposure of top U.S. banks to commercial real estate based on Q3 2023 data from UBS 📊 As we continue monitoring these trends and their implications for site development and planning strategies, let's strive towards a sustainable future where growth aligns with risk management 🌱 #CommercialRealEstate #Banking #RiskManagement #Sustainability

"Unrealized losses on available-for-sale and held-to-maturity securities increased by $39 billion to $517 billion in the first quarter. Higher unrealized losses on residential mortgage-backed securities, resulting from higher mortgage rates in the first quarter, drove the overall increase. This is the ninth straight quarter of unusually high unrealized losses since the Federal Reserve began to raise interest rates in first quarter 2022.” #Maltaway #investment #wealthprotection #bank #abroad https://lnkd.in/dhq8T5M7

Non-performing loans can tie up a bank’s capital, making it difficult to maintain adequate liquidity. Small banks may struggle to meet withdrawal demands from depositors or to provide new loans, potentially leading to a liquidity crisis. Defaults in commercial real estate will attract increased attention from regulators. Small banks may face stricter regulatory requirements and higher compliance costs, further pressuring their financial health. Persistent loan defaults can erode the confidence of investors and depositors. This can lead to reduced investment and withdrawals, exacerbating the bank’s financial troubles and increasing the risk of failure. Managing a high volume of distressed assets requires significant resources. Small banks, with limited capital reserves and operational capacity, will struggle to manage these assets. Be prepared for financial deterioration coming soon in CRE in the US.

Many surprises and opportunities to come with banks that have a high CRE portfolio. Looking at rent controlled areas and crime area can be a huge hit. Many loans may be maturing and the cash flows will not support the higher rate and payments. Loan sales will follow which may have significant losses to the value of the loan assets. Lots of buying opportunities and hold on.

Investors eye a real estate crisis impacting banks; New York Community Bancorp's downgrade by Moody's to junk status signals deepening worries over commercial mortgages. #FinancialCrisis #RealEstate #BankingSector #fintech #banking #tech https://lnkd.in/eNntxdrV