Tag Archives: defaults

Regional Banks could be in real trouble as Commercial Real Estate melts down

Commercial-Real-Estate

Important Takeaways:

  • In case you’ve still got money in a bank, Bloomberg is warning that defaults in commercial real estate loans could “topple” hundreds of US banks.
  • Leaving taxpayers on the hook for trillions in losses.
  • To set the mood, a new study predicts that nearly half of downtown Pittsburgh office space could be vacant in 4 years. Major cities like San Francisco are already sporting zombie-apocalypse downtowns, with abandoned office buildings baking in the sun.
  • So what happened?
  • The Fed’s yo-yo interest rates first flooded real estate with low rates and cheap money. Which were overbuilt.
  • Then came the lockdowns, which forced millions to figure out new workday patterns.
  • These days, everyone talks about hybrid models of working, some in-person and some remote… In any case, even a 30 percent reduction in the footprint of office space once the leases are renewed could topple the entire sector.
  • The restaurant and retail sectors of downtown feel the pinch, with more closures all the time. Adding to the pressure are absurd levels of inflation and ever-riskier streets on matters of personal security. Put it all together and there is ever less reason to slog to the office.
  • When the Fed panic-hiked interest rates in the 2021 inflation, that put trillions of commercial real estate underwater even without other factors. Add to that crime, inflation, plus remote work, and you have a dangerous mix that could toppled cities as we know them.
  • That crisis only stopped when Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell effectively bailed out every bank in America with sweetheart loans written on fictitious asset values along with unlimited taxpayer guarantees through the comically underfunded FDIC.
  • Without those government pre-bailouts, one paper last year by researchers at Stanford and Columbia estimated that 1,619 US banks – about a third of them – could be at risk of failure.
  • The problem is that nothing was actually fixed. In fact, it’s getting worse. For the simple reason that as the months roll by there’s more and more debt coming due.
  • And that brings us to Crombie, who notes that there’s $929 billion of commercial real estate debt coming due in the next 9 and a half months.

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Global Economic Storm; $500 billion in corporate debt

Revelations 13:16-18 “Also it causes all, both small and great, both rich and poor, both free and slave, to be marked on the right hand or the forehead, so that no one can buy or sell unless he has the mark, that is, the name of the beast or the number of its name. This calls for wisdom: let the one who has understanding calculate the number of the beast, for it is the number of a man, and his number is 666.”

Important Takeaways:

  • A $500 Billion Corporate-Debt Storm Builds Over Global Economy
  • Richard Cooper’s phone is something of an early alarm bell for the global economy. Lately, it’s been ringing a lot.
  • A partner at Cleary Gottlieb, a top law firm for corporate bankruptcies, he’s advised businesses worldwide for decades on what to do when they’re drowning in debt. He did it through the global financial crisis, the oil bust in 2016 and Covid-19. And he’s doing it again now, in a year when big corporate bankruptcies are piling up at the second-fastest pace since 2008, eclipsed only by the early days of the pandemic.
  • “It feels different than prior cycles,” Cooper said. “You’re going to see a lot of defaults.”
  • His perch has given him a preview of the more than $500 billion storm of corporate-debt distress that’s already starting to make landfall across the globe, according to data compiled by Bloomberg. The tally is all but certain to grow. And that’s deepening worries on Wall Street by threatening to slow economic growth and strain credit markets just emerging from the deepest losses in decades.
  • The rising tide of distress is, of course, to a certain degree by design. Caught by surprise as inflation surged, monetary policymakers have been aggressively draining cash from the world’s financial system, intentionally seeking to slow their economies by stanching the flow of credit to businesses. Inevitably, that means some will fail.

Read the original article by clicking here.