Warnings have been sounding for quite some time now concerning more banks getting into trouble and it looks like it’s starting to happen. The folks at The Economic Collapse wrote an article recently discussing how March 11th would kick things off as a critical program at the Federal Reserve that props our banks would come to an end. Things didn’t even make it until then. Shares of New York Community Bank started crashing, according to Zero Hedge:
Once the darling of the small banking crisis comeback, New York Community Bancorp has crashed 45% to fresh 30 year lows after The Wall Street Journal reportsthe bank is seeking to raise equity capital in a bid to shore up confidence in the troubled regional lender.
According to people familiar with the matter, NYCB has dispatched bankers to gauge investors’ interest in buying stock in the company.
There’s no guarantee there will be a deal, or that one would succeed in addressing the bank’s challenges, which as of Wednesday morning had led to a roughly 80% decline in its stock price since January.
As January kicked off, shares of New York Community Bank were being sold for more than $10 per share. At one point early on in the month of March they were trading for less than $2. Yikes. That’s a pretty massive drop. So what caused the bank to get so deep in trouble?
Well, the official reason being given is that “the quality of its commercial real estate loans soured:”
The bank has faced a crisis in recent months after the quality of its commercial real estate loans soured and ratings agencies downgraded its credit status to junk.
Companies are giving up on offices and downtown retail spaces – after Covid normalized working from home and catalyzed the decline of downtown shopping.
That left the owners of commercial buildings unable to pay lenders like NYCB. Some 16 percent of its loans are for commercial real estate acquisition, development and construction.
To summarize, New York Community Bank has a LOT of really bad commercial real estate loans. It seems that we are well on our way to entering a massive commercial real estate crisis, maybe one of the greatest in our country’s history.
Billionaire real estate investor Barry Sternlicht is predicting that we are going to see a whopping trillion dollars in losses on office properties in the U.S.:
There are growing signs that commercial real estate is in serious trouble.
Barry Sternlicht, a billionaire real estate investor and Starwood Capital’s CEO, recently predicted $1 trillion of losses on office properties alone.
More than $900 billion, or 20%-plus of the total debt owed on US commercial and multi-family real estate, will mature this year, Bloomberg reported this week. Borrowers may have no choice but to refinance at much higher interest rates, or sell their properties at a big discount.
America has not seen a commercial real estate crisis of this magnitude before. There are going to be some serious negative consequences for the financial markets as a result.
Bloomberg is reporting that bond investors “have punished banks with heavy exposure to commercial real estate:”
Bond investors have punished banks with heavy exposure to commercial real estate, potentially adding even more pressure to the lenders’ profits as Wall Street scrambles to assess how widely pain in property debt will spread through the financial system.
And this is just the start, ladies and gentlemen. There are hundreds of banks across the U.S. that are currently floundering in a sea of bad commercial real estate loans. However, there is at least a tiny bit of good news.
New York Community Bank has found some folks gullible enough to give them a billion dollars:
Shares in New York Community Bank soared this afternoon after the struggling lender announced a $1 billion capital raise and new leadership.
NYCB agreed to a deal with several investment firms in exchange for equity in the regional bank, it announced on Wednesday afternoon.
Those firms include Hudson Bay Capital, Reverence Capital Partners and Liberty Strategic Capital, headed by former US Treasury secretary Steven Mnuchin.
Will this injection of cash be enough to save NYCB? Maybe in the short term it will help with things, however, in the long run, it’s not likely the institution will survive. And that same statement can be made for hundreds of other banks.
The economy as a whole is taking some hard hits right now, which is to be expected when you dump trillions of dollars of funny money into the system to keep things running for just a little longer. Ultimately, this is putting a band aid on something that needs stitches and then ripping it off, which makes the wound worse.
Chaos is on the horizon, folks. Best get prepared now.