The worst is over, or is it?

Despite an interest-rate increase on Wednesday, Fed Chair Jerome Powell stated that the worst is over for the banking sector.

Not according to Moody’s it isn’t:

I see the danger areas being car loans and commercial property loans. When they start handing back malls and offices the real problems will start.

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The CRE turnover will be long, drawn out and likely not put into public exposure to the extent you think.

To protect the interest in these “assets”, the partner teams and corporations who own these assets will seek organized funding where preferred equity, and private money are brought to the table with very attractive terms for those entities.

This will forestall the ‘give back’ bankruptcy arc significantly. After those deals are tendered, expect relaxed timelines, value add project redevelopments (like conversion to condo/apt living, etc.)

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…and I expect significant governmental assistance to some of those “deals” as the lobbying revs up big time to appeal to both our schizoid political parties contradictory needs and nostrums.

I am holding onto my prime properties CRE REIT, which has taken a huge drop in price but is sustaining dividends and high occupancy rates. But I do sweat about it.

david fb

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Ticker symbol please?

KRC, Kilroy Realty Corp, specializing in A+ quality mostly advanced high tech corporation rental mixed commercial buildings and developments.

I got into it via a weirdly successful sequence of 1031 exchanges beginning with bare land, passing through a small Hollywood office building and then a small share of a huge Hollywood office building, which was bought out by KRC preserving my tax exemption one last time. I put all my ownership into a Fidelity managed DAF that I happily use as my primary charitable giving purse, selling off chuncks each year.

david fb

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Ya, the worst is over (doesn’t mean that there will be no more bank failures, just none as large as SVB) - and I am not sure I would be quoting Moody as some great prognosticator of crisis status…

Moody’s Failed to Warn About Silicon Valley Bank’s Problems

The prestigious rating agency still gave the bank of startups an A rating until its collapse on March 10, repeating the same errors of the subprime crisis in 2008.
https://www.thestreet.com/technology/moodys-failed-to-warn-about-silicon-valley-banks-problems

Snip:

Obligations rated A are judged to be upper-medium grade and are subject to low credit risk," the ratings agency says in its ratings definition document. “Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.”

The markets are getting concerned about the US dollar and the US banking system.

Japan and China are selling off US dollar forcing yields up - people are getting a bit jittery

A noticeable change seen in recent times is the fall in many central banks’ holdings of US Treasury bonds. The two largest US bond holders, Japan and China, have been reducing their holdings for three and six months. Yet these two countries are not the only ones to do so. At least 19 other governments, including those of Brazil and Vietnam, have also sold significant portions of their US Treasury bonds since May.

More on banks

https://edition.cnn.com/2023/08/08/investing/moodys-credit-ratings-us-banks/index.html

“How Did You Go Bankrupt?” “Two Ways. Gradually and Then Suddenly.”
(Hemingway)

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Come to papa, I have been waiting.

Sometime next year we wait.