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Skol

33,110 Posts.

1402

15/01/24

08:12

Post #: 71875872
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Originally posted by calmbeforestorm: ↑

USA banks are having a really hard time which is expected to continue and may worsen. It looks like a house of cards to me.

It is only the Fed’s liquidity measures that are stopping heaps more banks going to the wall and a run on more banks. A SMH article notes “There has been no repeat of the lightning-fast bank runs that brought down Silicon Valley Bank, First Republic, and two smaller lenders last March, with contagion toppling Credit Suisse in Europe. But that is because the Fed’s liquidity support has allowed lenders to ‘‘ extend and pretend’’ .

The Fed may need to take a lot more action but even if they do we are looking at a very fragile banking system in the USA. It reminds me of what started to happen in 2007 and then it took 18 months before matters exploded to create the GFC. Are we facing a similar situation especially given this statement in the paper:

‘‘ Default rates could potentially reach levels comparable to or even surpassing those seen during the Great Recession,’’ said the paper, published by the National Bureau of Economic Research.

There are 2 issues being A. Losses on bonds from rising interest rates and B. Commercial real estate losses as occupancy rates are around 50% and debt refinancing at much higher rates slashing property valuations by possibly around 50%.

Regarding A. above the following is a chart from SCP Resource Financing article of 21 November 2023 (previously Sprott Capital Partners prior to a buyout in mid-2023). The following image summarises the issue quite well. Losses are huge for banks.

For B and article from the SMH of 10 January which was first published in the UK Telegraph titled “Commercial property values slump could trigger fresh US bank failures”. The comments from a NY Fed member is very telling as his company defaulted on a $US240m loan and he expects 500 to 1,000 banks to disappear. The article is based on a paper from 4 finance experts who state property values have fallen by 50% from their peak and 45% of all office loans are in negative territory. The equity is wiped out and half the loan is wiped out.

This article states 2,000 banks are facing negative capital due to interest rate shock and losses on bonds before even considering losses on commercial property loans which are concentrated on regional banks - ie more banks will face negative capital. It also states that 300 banks are at risk of facing a solvent run.

It looks like a house of cards

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I'd be taking anything Evans-Pritchard says with a grain of salt...here's his prediction for gold in 2011.
13 years later and it's still not within a bull's roar of US$3,000.

Last edited by Skol: 15/01/24
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