US banks hold about $2.7 trillion in commercial real-estate loans.
The majority of that, about 80 per cent, according to Goldman Sachs economists, is held by smaller, regional banks -- the ones that the US government hasn’t classified as “too big to fail”, CNN reported.
Much of that debt is about to mature, and, in a troubled market, regional banks might have problems collecting on those loans. More than $2.2 trillion will come due between now and the end of 2027, according to data firm Trepp.
Fears were exacerbated last week when New York Community Bancorp reported a surprise loss of $252 million last quarter compared to a $172 million profit in the fourth quarter of 2022.
The company also reported $552 million in loan losses, a significant increase from $62 million recorded in the prior quarter. The increase was driven partly by expected losses on commercial real-estate loans, it said, CNN reported.
Shares of the bank have plummeted nearly 50 per cent over the past five trading sessions. The US Regional Bank index dropped by about 7 per cent over the same period, CNN reported.
It’s been nearly a year since the collapse of three US regional lenders that left financial institutions and regulators scrambling to prevent the spread of a banking crisis.
Today, investors are worried they’re back on familiar territory. But while the last crisis was all about interest rate risk, this one revolves around the $20 trillion commercial real-estate market.
After decades of growth bolstered by low interest rates and easy credit, commercial real-estate has hit a wall.
Office and retail property valuations have been falling since the pandemic changed where people live and work and how they shop.
The US Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry, CNN reported.