Federal regulators have indicated that they will be closely monitoring 22 regional banks across the United States due to their large portfolios of commercial real estate loans. This warning comes after a public announcement from the Federal Reserve, FDIC, and Office of the Comptroller of the Currency urging banks to carefully assess their exposure to debt on office buildings, retail storefronts, and other commercial properties.
According to financial reports from BarChart and Reuters, several regional banks such as Valley National Bancorp, WaFd Inc., and Axios Financial have seen declines in share prices following concerns about their high levels of CRE loan volume. The recent earnings release from New York Community Bancorp also sparked investor scrutiny after reporting significant losses due to its CRE loan exposure.
Short-seller William C. Martin has taken notice of these developments and has placed bets against NYCB as well as OceanFirst bank. He believes that with interest rates remaining high it will be difficult for these banks to avoid problems with CRE loans.
The potential for increased regulatory pressure is also a concern for investors as some lenders may be forced to bolster reserves or cut dividends if deemed necessary by authorities. According Trepp data cited by Reuters, any lender with a proportionate level above 300% in relation risk-based capital may face significant risks associated with concentration in CRE holdings.
