By Ethan Huff /May 30, 2024/ NewsTarget
Everywhere you look companies are going out of business, leaving in their wake empty commercial units with no other entity willing or able to take their place. And this is only just the beginning.
A major financial crisis is building, the foreshocks of which were seen last year with numerous bank failures. In 2024 so far, there has been a wave of business failures including major names like Red Lobster, Marie Callender’s and others closing up shop for good.
The already hobbling economy can only take so much of this before the entire commercial real estate (CRE) sector falls off a cliff, which is what appears to be happening as you read this.
“I think that there’s more to come,” commented Peter Earle, a securities analyst and senior research fellow at the American Institute for Economic Research about the major hit America’s banks are about to take for all their exposure to the collapsing CRE sector.
(Related: Once the CRE collapse really gets going, you can expect a lot more bank failures.)
When will the CRE bomb explode?
Many regional banks especially are sitting on massive portfolios filled with distressed CRE loans. A number of them are attempting to make it through the storm through a process called “extend and pretend,” which grants insolvent borrowers more time to pay their loans.
It is a way of trying to kick the can but it can only go on for so long before the inevitable strikes. If businesses are unable to pay their bills and ultimately default, especially in large numbers, banks everywhere will be on the hook for more than they can handle.
“There is trouble out there, and most of it probably won’t be realized because of the ability to roll some of these loans forward and buy a few more years, and maybe things will recover by then,” Earle says.
“But all it does is it kicks the can down the road, and it basically means a more fragile financial system in the medium term.”
The bigger banks have less CRE exposure in proportion to the rest of their portfolios than the regional banks do. The latter will collapse before the former, but both will suffer big time unless some major shenanigans are pulled to keep the sinking Titanic afloat a little longer.
The regional banking crisis that unfolded last year was resurrected this past February when New York Community Bank (NYCB) announced $2.4 billion in losses before firing its CEO. NYCB now faces credit downgrades by rating agencies Fitch and Moodys.
Following the announcement, NYCB’s share price plummeted by 60 percent almost overnight, erasing billions of dollars from its market value as depositors fled the company in very large numbers.
For NYCB, the problem was mostly landlords who were struggling to remain solvent. At the start of 2024, the bank had more than $18 billion in loans on its books held by multi-family, rent-controlled housing developments.
What made the NYCB situation even more problematic for the banking sector is the fact that it had previously rescued Signature Bank, one of the regional banks that collapsed in March 2023.
“Much of what took down banks such as Signature Bank in last year’s banking crisis was an unmanageable level of deposits from high net worth and corporate clients that were too large to be insured by the Federal Deposit Insurance Corporation (FDIC),” reported The Epoch Times.
“In Signature Bank’s case, about 90 percent of its deposits were uninsured, and depositors rushed to withdraw their money when the bank came under stress from losses in the cryptocurrency market.”
The American economy is running on illusion and fumes. Learn more at Collapse.news.
Sources for this article include: