Banking Giants Confront Rising Delinquencies In Commercial Real Estate Sector
Portfolio Pulse from Piero Cingari
Rising delinquencies in the commercial real estate sector are causing concerns for major banks like JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley, as bad loans begin to exceed loss reserves. The Financial Times reports a significant drop in average reserves against delinquent debt, with a nearly tripled delinquent debt reaching $9.3 billion. The banking sector's scrutiny by regulators increases as delinquent loans tied to commercial properties more than double to $24.3 billion. The Financials SPDR Select Sector Fund and the SPDR S&P 500 Regional Banking ETF saw declines, with New York Community Bancorp, ServisFirst Bancshares, and Valley National Bancorp experiencing notable stock drops.
February 20, 2024 | 4:53 pm
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NEUTRAL IMPACT
JPMorgan Chase's loss reserves for CRE loans have decreased but remain above 1 for every dollar of delinquent debt.
JPMorgan's better-than-average reserve ratio may provide some insulation against immediate negative market reactions, but the overall sector's challenges could limit upside potential.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 80
NEGATIVE IMPACT
Bank of America's loss reserves to delinquent loans ratio has dropped below 1, indicating increased vulnerability to CRE loan delinquencies.
The drop in reserve ratio below 1 suggests a higher risk of negative impact on BAC's stock price in the short term due to potential losses from CRE loans.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
Citigroup's reserve ratio for CRE loans is below 1, signaling potential challenges due to increased loan delinquencies.
With a reserve ratio below 1, Citigroup faces increased risk from CRE loan delinquencies, potentially impacting its stock negatively.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
Goldman Sachs' reserve ratio for CRE loans has dropped below 1, indicating vulnerability to the sector's rising delinquencies.
The decrease in reserve ratio below 1 for Goldman Sachs suggests a higher risk of adverse effects on its stock due to CRE loan delinquencies.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
The SPDR S&P 500 Regional Banking ETF saw a decrease of 0.7%, influenced by the banking sector's rising CRE loan delinquencies.
KRE's decline is a direct response to the increased risk in the banking sector from CRE loan delinquencies, suggesting potential for further losses.
CONFIDENCE 75
IMPORTANCE 60
RELEVANCE 70
NEGATIVE IMPACT
Morgan Stanley's reserve ratio for CRE loans is below 1, reflecting increased risk from the sector's rising delinquencies.
Morgan Stanley's decreased reserve ratio signals a heightened risk of negative impact on its stock price due to CRE loan delinquencies.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
New York Community Bancorp shares dropped nearly 4%, making it the most adversely affected among bank stocks due to CRE loan delinquencies.
NYCB's significant stock drop reflects the direct impact of rising CRE loan delinquencies, indicating a strong negative market reaction.
CONFIDENCE 90
IMPORTANCE 90
RELEVANCE 90
NEGATIVE IMPACT
ServisFirst Bancshares faced a downturn, with shares declining by more than 2% due to concerns over CRE loan delinquencies.
The decline in SFBS's stock price is likely due to the broader banking sector's issues with CRE loans, suggesting a negative outlook.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 80
NEGATIVE IMPACT
Valley National Bancorp's shares also declined by more than 2%, impacted by the rising delinquencies in CRE loans.
VLY's stock downturn reflects the negative sentiment in the banking sector due to increasing CRE loan delinquencies, indicating potential further declines.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 80
NEGATIVE IMPACT
Wells Fargo's reserve ratio for CRE loans has also fallen below 1, highlighting increased risk from rising delinquencies.
The decreased reserve ratio indicates a heightened risk of financial strain from CRE loan delinquencies, likely pressuring WFC's stock price.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
The Financials SPDR Select Sector Fund experienced a slight drop of 0.3% amid concerns over rising CRE loan delinquencies.
The slight drop in XLF's price reflects market concerns over the banking sector's challenges with CRE loans, potentially indicating further downside.
CONFIDENCE 75
IMPORTANCE 60
RELEVANCE 70