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Forward Guidance
Chris Whalen: Commercial Real Estate "Trainwreck” Will Hit Banking System, Consumer Credit Is Normalizing, and Interest Rate Cuts Won’t Do Much To Help Banks
Jan 26, 2024
Chris Whalen, financial advisor and founder of Whalen Global Advisors, discusses the challenges in the US banking sector, particularly in commercial real estate. He highlights the impact of COVID, rising interest rates, and potential credit events. Whalen also explores the consequences of interest rate shocks, the importance of risk management for banks, and the proposals of Basel 3. Additionally, he delves into gain on sale accounting, mortgage servicing rights, and the future outlook for the banking sector.
01:08:38
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Quick takeaways
- Banks are slow to recognize and disclose losses in the commercial real estate market, posing challenges for restructuring and impacting earnings for regional banks.
- Consumer credit for banks remains strong, but there are concerns about increased defaults in low-income households.
Deep dives
Slow walking commercial problems in the banking system
Banks are slow walking commercial problems, making use of their liquidity to decide when to keep certain situations alive and when to liquidate them. Various types of commercial properties, including office buildings, warehouses, and malls, are experiencing value declines due to changing use cases and the impact of COVID. These changes in value and new expectations for returns on assets pose challenges for banks, which may need to require borrowers to inject additional capital to keep their properties. There is a need for the analyst community to ask questions about these potential losses and for banks to recognize and disclose them to investors.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode