HERE WE GO: Powell Declares Certain Banks Must Go Amidst Commercial Real Estate Downturn
📉 Is the regional bank crisis over or just beginning? Recent events, including New York Community Bancorp’s stock plummeting due to commercial real estate losses, raise alarms. With half a trillion dollars in debt due this year and property values declining, small banks face a looming crisis. Learn how this impacts your financial security and why it’s time to consider alternatives. Protect your wealth outside the traditional system. Join us to explore strategies for safeguarding your finances.
CHAPTERS:
00:00 NYCB Collapse
01:30 Regional Bank Stakes
04:21 Office Loan Delinquencies 5-year High
06:00 Regional Bank Stocks Plummet
TRANSCRIPT:
Did the regional bank crisis ever really end, or were last year’s failures just the beginning? This past week, we saw New York Community Bancorp stock in a freefall, losing over half of its value in a matter of days, thanks primarily to massive losses from commercial real estate.
In a shocking twist, even Federal Reserve Chairman Jerome Powell admitted this week that there will be closures as a result of this impending commercial real estate crisis.
Between plummeting property values, soaring defaults and a rapid decline in depositor confidence. It is clear that NYCB represents the future outlook for small and regional banks across the nation, not the past. I’m Taylor Kenney with ITM Trading and this is Taylor Made Economics.
The commercial real estate sector is in turmoil and the ability to pretend that it’s not going to have an impact on regional banks is rapidly diminishing.
Half a trillion dollars worth of debt obligations are due this year. Property values are continuing to plummet and with higher interest rates resulting in higher defaults and the inability to refinance. The commercial real estate fuze has been lit for a regional banking bomb.
While often the focus is on the too large to fail banks, it is actually regional and smaller banks who hold 80% of all commercial real estate loans.
Today, we’ll break down how New York Community Bancorp’s NYCBs demise represents what these regional banks are up against, and how a commercial real estate induced collapse will impact you and your financial security.
Last week, NYCB, which operates roughly 400 branches, watched their stock plummet to a 27 year low after they slashed dividends and reported a $250 million Q4 loss thanks to troubled commercial real estate loans.
Following this announcement, Moody’s, one of the big three credit rating agencies, downgraded their credit rating to junk status, threatening more downgrades if the freefall continued.
So what went wrong? Up until a few years ago, commercial real estate was considered a relatively safe investment and a good way for banks to make money, with demand climbing up and interest rates near zero.
Regional banks created a tremendous amount of commercial loans, which was all fine until demand slowed, at which point borrowing also slowed. And all that is left is risk and exposure, which is what is happening right now.
Thanks to slowing economic activity, lower occupancy rates and higher borrowing costs. The commercial real estate crisis has been brewing for a couple of years as vacancy rates go up. Rent rates go down.
This creates a situation where the asset value drops. The loan to value ratio increases, which often means that there needs to be more borrowing of money. But in a time like this, when interest rates are high, it becomes very difficult to sustain. When demand is low and almost near impossible to refinance if necessary.
Last year, in 2023, almost half a trillion dollars of debt backed by offices and apartments, hotels came due, the most ever due in a single year, with many unable to repay their debts. But the inability of this debt repayment was pushed off because many were granted an extension on these debt obligations.
But that was a temporary fix and things are not looking good this year. In fact, occupancy rates continue to drop and property values are anticipated to decline by another 10% this year alone.
So now we have this situation where all of this money is coming due and banks are finally being forced to face the facts that there is a high likelihood that they will not be able to collect on these loans.
As it stands today, office loan delinquencies, just office loan delinquencies are anticipated to reach 8% this year as these loans aren’t paid back. Banks will not only be absorbing these costs, but it means real financial constraints for the banks. A loss in liquidity which results in a serious fear that there might not be enough money to cover depositor withdrawals.
And this is exactly what we’re seeing right now with NYCB, a loss of faith. The same type of loss of faith that resulted in multiple bank failures last year. Now, I know that there are many people out there who are saying, Well, it’s just an acquisition game. When that happens, these smaller regional banks are just going to get scooped up and acquired by larger banks, which makes a lot of sense and very well could be the case.
But let’s not forget how NYCB got themselves into the dire situation that they’re in today. They acquired $40 billion worth of assets from Signature Bank when it failed. Not only was NYCB not equipped to scale that quickly, but the supposed assets that it acquired were all toxic. They were assets from a failing bank.
And this is exactly what will continue to happen if we push forward with this consolidation game. It simply is not sustainable. The toxic assets don’t disappear. It’s merely playing kick the can down the road and people can tell that we are not out of the woods here and that the beginning is just starting. Regional bank stocks have gone down an average of 10% over the last week as people are realizing the sheer scope of risk and what they’re up against.
So to summarize the situation that we have going on. Regional banks have massive exposure from commercial real estate loans, a sector that we know is not rebounding any time soon. On top of that, we know that these banks do not currently have adequate reserves.
A bank’s ability to complete withdrawal requests without reserves is therefore dependent on the sale of assets here at a loss or timely payment on debt.
And this comes at a time when defaults are on the rise. So this is what creates that perfect storm where there is a loss of faith because people, rightfully so, are concerned if their deposits are covered. And that’s what leads to a bank run, which is what led to the failure of multiple banks last year. And we know in today’s day and age how quickly they can occur.
And I’m sorry, but this makes me mad. How many people don’t know that the Federal Deposit Insurance Corporation, the FDIC, the people who are supposed to protect your money and make sure that your money is safe, they do not have enough funds to cover all of their insured depositors. So what happens then? What happens if multiple of these regional and small banks begin to fail?
We are all familiar with bailouts where the government buys toxic assets and injects capital in to keep a bank from failing. But if it too many banks all at once, are you familiar with the concept of a bail in? A bail in is where a bank can legally seize your deposits and use it to turn their debt into equity to keep the bank afloat?
I’ve read your comments. I know that a bail in keeps many of you up at night and I don’t blame you. The idea that a bank who has made terrible financial decisions just so they could turn a profit would be legally allowed to steal your money. To make themselves whole should be a crime. But it’s not. And it is one of the many reasons why I believe that it is time.
If you haven’t already, to exit the Fiat financial system and make sure that you are protected if you don’t know how or where to start, that is okay. Do not worry. You are not alone. Click the Calendly link below or scan the QR code. Whatever is easiest. Our analysts are here to help. They have decades of experience in gold and silver and making sure that you have a strategy in place that is best for you.
It’s not a one size fits all. I see your questions, and I know you have so many different situations, concerns, goals, and that is what we are here to help with. All I can say is that there is nothing like the peace of mind that you get from making sure that your wealth is protected outside of the system.
So click that kindly link or scan the QR code today, and if you’re not already, please be sure to subscribe. Like comment. I love reading your comments. It is so important to help share the message and get the word out. Remember, we are all in this together. You are not alone.
And if you haven’t already, be sure to check out Daniela Camboni’s interview with Bert Dohmen. A gigantic systemic meltdown. They talk about regional banks and how important it is to have a Plan B. I know you’ll love it. As always, I’m Taylor Kenney with ITM Trading. Until next time.
SOURCES:
https://www.wsj.com/economy/central-banking/powell-says-fed-has-new-focus-when-to-cut-rates-dbc3f6af
https://www.cnn.com/2024/02/06/investing/premarket-stocks-trading/index.html
https://www.cnn.com/2024/02/01/investing/bank-losses-office-real-estate/index.html
https://www.foxbusiness.com/markets/bank-purchased-failed-community-bank-close-credit-downgrade
https://news.yahoo.com/nycb-tense-talks-watchdog-led-223634623.html
https://www.nytimes.com/2024/02/06/business/banks-real-estate-fears.html
https://finance.yahoo.com/news/nycb-risk-chief-left-bank-090711488.html
https://www.cnn.com/2024/02/07/investing/new-york-community-bank-stock/index.html
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
https://www.cnbc.com/2023/03/13/signature-bank-third-biggest-bank-failure-in-us-history.html
https://finance.yahoo.com/news/younger-americans-falling-behind-credit-035746137.html
