The Potential Liquidity Concerns of US Banks as Six Trillion Dollars Worth of Loans Expire

According to Jeffrey Sherman, the president of the American investment company “DoubleLine”, US banks are worried about liquidity, because in a couple of years the six trillion dollars’ worth of loans will expire.

“Fleeing from banks can happen at any moment.

As long as the US Central Bank supports high interest rates, it creates a ticking time bomb, because customers will not want to keep money in the bank, but to move it to less risky funds or government bonds,” explained Sherman.

The US Central Bank has allowed major banks to develop an action plan in case the most extreme scenario, that is, a 40% drop in the value of commercial real estate, takes place.

Currently, the average commercial property value in the UK has already fallen by around 20% from the highest value previously reached. So far, it has not caused problems in lending.

As the investment director of “Bank Syz” Charles Henri Moncho stated, the rapid increase in interest rates should not be underestimated. He compared the situation to fishing.

“The small fish are caught first. Larger specimens, like whales, are caught last. Was Credit Suisse a whale? And what about “Silicon Valley Bank”? We will find out about that later.

Perhaps the main whale is the real estate of the business,” says Moncho.

The green turn adds fuel to the fire

HSBC Bank is among the companies trying to reduce their carbon footprint. That is why the bank is reducing the number of offices, mainly by abandoning energy-inefficient buildings. According to the data of the consulting agency “JLL”, it is very important to achieve the “greening” of more than a billion square meters by 2050. At least 3-3.5% of commercial space should be made more environmentally friendly every year in order to achieve zero carbon emissions.

Australia’s largest superannuation fund, AustralianSuper, announced in May that it would no longer invest in unregistered office or commercial properties due to their low returns.

At the same time, commercial real estate companies face a situation where stock buyers buy stocks short-term, hoping to capitalize on their decline in value. According to the data of the Hazeltree company, a significant drop of 30% in the shares of commercial real estate developers in Europe and the Middle East has been observed in 15 months.

“Investors will have to accept a lower yield,” stated the company “Capital Economics”, adding that according to the old parameters, commercial property is significantly overvalued.

2023-07-31 10:58:00
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