Banking turmoil isn't over as regional lenders face risk of commercial-property credit losses, JPMorgan strategist says
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- Regional banks' troubles aren't over and remain "an area of concern", JPMorgan Asset Management's Jonathan Liang said.
- They are facing increased risks of credit losses in the commercial-property sector, which may come under stress, he said.
- "The story in banking is not over yet," Liang told Bloomberg on Wednesday.
US regional banks have been at the center of the worst financial turmoil since the 2008 crisis, and their troubles are far from over, according to a JPMorgan Asset Management strategist.
The small and mid-sized regional banks remain "an area of concern" because of their increased lending exposure to the commercial real-estate sector, which is grappling with high vacancy rates and may come under stress, Jonathan Liang, JPMorgan Asset's head of Asia ex-Japan investment specialists, told Bloomberg on Wednesday.
Over the last 12 to 18 months, "most of the bank lending that has occurred in America has come from US regionals and most of that lending has actually gone into commercial real estate," Liang said.
"So this has gone to a lot of construction of suburban offices, which remain very vacant, the occupancy rate remains about maybe 50% pre-COVID. And so we think that in the coming year or two, there's going to be growing distress in this space, and that will also potentially amount to credit losses for those US regional banks," he added.
"And so, we think the story in banking is not over yet," he continued.
Many experts have warned the US commercial real-estate sector could face problems as high borrowing costs and tighter credit conditions following the recent banking turmoil complicate matters for big property owners as they seek to refinance loans.
Nearly $450 billion in commercial real-estate debt is due to mature in 2023 - meaning a final payment on those loans are due, per data cited from Trepp by JPMorgan.
Billionaire investor Howard Marks rang the alarm on commercial real estate this week in what he labels as "one of the biggest worries" US banks face today.