“$962 BILLION Due” - Nearly 300 Banks Could FAIL Due to Collapse of Commercial Real Estate

Valuetainment
3 May 202409:34

Summary

TLDRThe video transcript discusses the potential risk of failure for hundreds of US banks, as highlighted by Christopher F. W., a managing director at Fitch Ratings. According to an analysis by Claris Group, 282 banks face the dual threat of commercial real estate loans and potential losses due to higher interest rates. The majority of these banks are smaller lenders with assets under $10 billion. While they are not insolvent, they are considered stressed, which could impact communities and customers. The conversation also touches on the upcoming refinancing of $962 billion in commercial paper within the next 18 months and the implications of higher interest rates announced by the Federal Reserve. The potential for bank failures and commercial real estate going into receivership is compared to, but distinguished from, the Great Depression. The discussion also covers the importance of cash reserves for banks, referencing the FDIC's insurance limit and the historical example of Washington Mutual's failure during the 2008 financial crisis. The potential impact of rising unemployment rates on the economy and the shift from full-time to part-time jobs are also addressed, with a mention of the Federal Reserve's economic data and its implications. The transcript concludes with a promotion for 'allegedly' shirts and hats, which are offered as a symbol of optimism for the future.

Takeaways

  • 🏦 **Risk of Bank Failures**: Hundreds of US banks may be at risk of failing or dipping below their minimum capital requirements due to commercial real estate loans and potential losses tied to higher interest rates.
  • 📉 **Impact on Smaller Lenders**: The majority of the banks facing these risks are smaller lenders with less than $10 billion in assets.
  • 💹 **Stress on Banks**: Banks are not necessarily insolvent but are stressed, which can still harm communities and customers.
  • 📚 **Commercial Paper Refinancing**: There's a significant amount of commercial paper refinancing ($962 billion) coming up in the next 18 months, which could be affected by higher interest rates.
  • 📈 **FED Rate Policies**: The Federal Reserve has indicated that interest rates will remain higher for longer, which could exacerbate the refinancing challenges for banks.
  • 📊 **Labor Market Shift**: There's a shift in the labor market with more part-time jobs being created than full-time jobs, indicating a potential issue with job quality and stability.
  • 👔 **Unemployment Rate Concerns**: An increase in the unemployment rate, particularly if it reaches 4.5% or higher, could force the Federal Reserve to adjust interest rates more aggressively.
  • 🤖 **AI and Job Displacement**: The rise of AI and automation could lead to increased unemployment in the future, which might not be well managed by current economic policies.
  • 💸 **Cash is King**: Individuals and firms with cash on hand are in a strong position to take advantage of opportunities that arise from market stress, such as buying assets at a discount.
  • 🏢 **Commercial Real Estate Concerns**: There's a potential for commercial real estate to go into receivership, which private equity firms are preparing for, indicating a readiness to capitalize on distressed assets.
  • 📘 **FDIC Insurance and Stress Tests**: The FDIC insures deposits up to $250,000, and banks are subject to stress tests to evaluate their cash reserves and financial health.

Q & A

  • What is the potential risk that hundreds of US banks may face according to the CNBC story?

    -The potential risk is that these banks may either fail or dip below their minimum capital requirements due to the dual threat of commercial real estate loans and potential losses tied to higher interest rates.

  • Who is Christopher WF and what does he say about the banks' situation?

    -Christopher WF is the managing director and head of North American banks at Fitch ratings. He told CNBC that there may be fewer bank failures, but communities and customers will still be affected by the stress on the banks.

  • What did the Claris Group analysis find regarding US banks?

    -The Claris Group analysis found that out of about 4,000 US banks, 282 face the dual threat of commercial real estate loans and potential losses tied to higher interest rates, with most of these banks being smaller lenders with less than $10 billion in assets.

  • What is the significance of the term 'stressed' in the context of banks?

    -The term 'stressed' in the context of banks refers to banks that are not necessarily insolvent but are facing financial stress that could impact their operations and the communities they serve.

  • What is the current situation with commercial paper refinancing in the US?

    -There is approximately $962 billion of commercial paper refinancing expected in the next 18 months, which could be affected by higher interest rates as indicated by the Federal Reserve.

  • How do private equity firms and individuals like Jamie Diamond fit into the scenario?

    -Private equity firms and individuals like Jamie Diamond are prepared to take advantage of the situation, as their balance sheets are ready to invest in commercial real estate that may go into receivership due to the financial stress on banks.

  • What is a 'stress test' in the banking context?

    -A 'stress test' in the banking context is a measure used to evaluate a bank's financial health by assessing its cash reserves and ability to withstand economic stress, similar to medical stress tests for individuals.

  • What is the FDIC insurance coverage limit for an individual account?

    -The FDIC insurance coverage limit for an individual account is $250,000.

  • What was the outcome of the Washington Mutual (WAMU) bank failure in 2008?

    -Washington Mutual (WAMU) failed the stress test and was sold to JPMorgan Chase for $1.9 billion, marking the largest bank failure in American history at the time.

  • What recent bank failures were mentioned in the transcript?

    -The recent bank failures mentioned were Signature Bank and First Republic Bank, with First Republic having $200 billion in insolvent assets and Signature Bank having $100 billion.

  • How does the current labor market situation relate to the banking crisis?

    -The labor market is shifting towards part-time jobs over full-time jobs, which could indicate a weakening economy. This, coupled with potential unemployment due to AI advancements, could lead to increased financial stress on banks and their customers.

  • What is the significance of the unemployment rate in relation to the Federal Reserve's actions?

    -The Federal Reserve closely monitors the unemployment rate, and if it rises to certain thresholds (like 4.5% or 5%), it may prompt the Fed to adjust interest rates to address economic concerns.

Outlines

00:00

📉 US Banks at Risk of Failure

This paragraph discusses the potential risk of failure for hundreds of US banks. Christopher F. W., managing director at Fitch ratings, warns that some banks may dip below their minimum capital requirements. Consulting firm Claris group analyzed around 4,000 US banks and found that 282 face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of these at-risk banks are smaller lenders with less than $10 billion in assets. While most are solvent, they are considered stressed. The potential for bank failures and commercial real estate going into receivership is compared to the situation in 1928 during the Great Depression, but the speaker emphasizes that the current situation is not as severe. The importance of passing stress tests for banks is highlighted, as well as the impact of unemployment rates on the economy and the potential for job losses due to AI.

05:02

👕 Allegedly Merchandise and the Labor Market

This paragraph covers two main topics. First, it discusses the launch of 'allegedly' merchandise, including shirts with the phrase 'Future Looks Bright' on the back. The speaker mentions a promotion where the first 100 customers to order an 'allegedly' shirt and a 'Future Looks Bright' hat will receive a bonus shirt and pin. The website to order the merchandise is VTmerch.com. The second half of the paragraph addresses the labor market. The speaker expresses concern about the rising unemployment rate, which is currently at 3.8% and creeping up. They discuss the potential consequences if it reaches 4.5% or higher, including the possibility of the Federal Reserve changing its position on interest rates. The paragraph also highlights a shift in the labor market, with a net increase in part-time jobs and a decrease in full-time jobs. The speaker criticizes the mainstream media for not discussing this 'dirty little secret' behind the job reports. They reference Federal Reserve economic data from St. Louis, which they say supports their claims.

Mindmap

Keywords

💡Bank Failure

Bank failure refers to the situation where a bank is unable to meet its financial obligations and is forced to close. In the context of the video, it is a central theme as it discusses the potential for bank failures due to the dual threat of commercial real estate loans and higher interest rates, which could lead to banks dipping below their minimum capital requirements.

💡Commercial Real Estate Loans

Commercial real estate loans are financial products provided to businesses for purchasing or developing commercial property. The video highlights the risk these loans pose to banks, as they are tied to potential losses, indicating that the banks' stability is linked to the performance of the commercial real estate market.

💡Interest Rates

Interest rates are the percentage at which interest is paid by borrowers and is the basis of gains for lenders. The narrative of the video emphasizes the potential for higher interest rates to cause financial stress on banks, particularly those with significant commercial real estate exposure.

💡Stress Test

A stress test in the banking context is a measure used to determine the capital adequacy of a bank under various economic scenarios. The video discusses how banks are subjected to stress tests to evaluate their resilience against financial shocks, with an emphasis on the importance of cash reserves.

💡Insolvency

Insolvency occurs when a company or individual is unable to pay off its outstanding debts. The video mentions that while most banks are not insolvent, they may be 'stressed,' indicating a potential risk of insolvency if financial conditions deteriorate.

💡Asset Size

Asset size refers to the total value of assets held by a financial institution, which is indicative of its financial health and size. The video specifies that the majority of banks at risk are smaller lenders with less than $10 billion in assets, highlighting the vulnerability of smaller banks to economic downturns.

💡

💡Commercial Paper

Commercial paper is a short-term debt instrument issued by corporations typically for financing purposes. The video mentions a significant amount of commercial paper refinancing in the next 18 months, which could be impacted by rising interest rates and potentially lead to bank failures.

💡Unemployment Rate

The unemployment rate is the percentage of the total workforce that is unemployed but actively seeking employment. The video discusses the potential for rising unemployment rates to impact the economy and financial stability, with a focus on how this could affect the labor market and the banking sector.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video touches on inflation not going lower and its impact on the value of cash and the ability to purchase assets at a discount.

💡Labor Market Shift

A labor market shift refers to a change in the dynamics of the labor market, such as a transition from full-time to part-time jobs. The video script indicates a shift in the labor market with a net increase in part-time jobs and a decrease in full-time jobs, which could have broader implications for the economy.

💡Federal Reserve Economic Data (FRED)

FRED is a database maintained by the Federal Reserve Bank of St. Louis that provides comprehensive economic data. The video refers to FRED as a reliable source for economic data, which includes footnotes that can reveal underlying trends such as the shift from full-time to part-time jobs.

Highlights

Hundreds of US banks may be at risk of failure due to commercial real estate loans and potential losses tied to higher interest rates.

The majority of banks facing this dual threat are smaller lenders with less than $10 billion in assets.

Most of these banks are solvent or close to insolvent, meaning they are stressed but not yet failing.

Fewer bank failures are expected, but communities and customers will still be impacted by the stress on banks.

$962 billion of commercial paper needs to be refinanced in the next 18 months, which could be challenging if interest rates remain high.

Private equity firms like Blackstone are prepared to take advantage of distressed commercial real estate if there are failures.

Banks are required to pass stress tests to ensure they have adequate cash reserves.

The FDIC insures deposits up to $250,000, so larger deposits may be at risk if a bank fails.

The largest bank failure in US history was Washington Mutual in 2008, which was tied to toxic mortgages.

Other major bank failures in the past year include Signature Bank, First Republic Bank, and Silicon Valley Bank.

Banks need to be prepared to pass stress tests, which are now tied to interest rates and commercial property.

Having cash on hand now is advantageous, as it allows investors to buy assets at a discount in a down market.

If unemployment rates rise significantly, it could force the Fed to increase interest rates more aggressively.

There is a shift in the labor market, with a net increase in part-time jobs and a net decrease in full-time jobs.

The Federal Reserve's economic data, available on the FRED website, shows this shift in full-time vs. part-time jobs.

The hosts discuss the launch of their new 'Allegedly' t-shirts and hats, which are now available for purchase.

For the first 100 orders of an 'Allegedly' shirt and 'Future Looks Bright' hat, customers will also receive a bonus shirt and pin.

Transcripts

00:00

why hundreds of US Banks may be at risk

00:05

of failure CNBC story you could see some

00:08

banks either fail or at least you know

00:13

dip below their minimum Capital

00:14

requirements Christopher WF managing

00:16

director and head of North American

00:17

banks at Fitch ratings told CNBC

00:19

consulting firms Claris group analyze

00:22

about 4,000 US Banks and here we go

00:24

found 282 Banks face the Dual threat of

00:28

commercial real estate loans and

00:30

potential losses tied to higher interest

00:32

rates the majority of these banks are

00:34

smaller lenders with less than $10

00:36

billion in assets most of these Banks AR

00:39

solvent or even close to insolvent

00:41

insolvent they're just stressed Brian

00:43

Graham said co-founder and partner of

00:45

Claris group uh tolds the embassy that

00:47

means they there will be fewer bank

00:49

failures but it doesn't mean that

00:51

communities and customers don't get hurt

00:53

by that stress Tom so there is a a

00:56

crisis that's about to happen and so

00:58

he's saying he already said there'll be

01:00

fewer bank failures what do you mean

01:03

fewer bank failures that's like saying

01:05

that's like saying hey when the

01:06

hurricane just passes by there'll be

01:08

less rain but it's still raining yeah so

01:12

that's what's going on here's a number

01:13

for you

01:17

962 billion of commercial paper

01:21

refinancing in the next 18 months ending

01:25

around end of the second quarter next

01:27

year so actually we're coming up on a

01:29

year yeah yeah yeah it's 12 months now I

01:31

was thinking since the beginning of this

01:32

year 962 billion n now if the rates go

01:36

down that way they could ref oh wait a

01:38

minute the FED just said the rates will

01:40

be higher longer uhoh uhoh getting warm

01:44

so there may be fewer bank failures but

01:47

the there's going to be bank failures

01:48

there's going to be commercial real

01:50

estate that goes into receivership and

01:52

this isn't going to be like 1928 in the

01:54

Great Depression but you're going to see

01:56

a ton of the stuff and the big private

01:59

equity firms and Jamie Diamond are ready

02:02

for it because their balance sheets are

02:04

ready to pounce and it's interesting

02:06

that they use that that term they're not

02:08

going to be in solvent they're just

02:09

stressed so if you ever go to a doctor

02:11

they're going to do something called a

02:13

stress test on you they do the same

02:15

thing for banks basically how much money

02:17

how much cash reserves you have um in

02:20

the house basically the FDIC what is it

02:23

$250,000 if you anything above that

02:25

basic so I remember when you interviewed

02:28

your buddy your good your good buddy

02:30

from WAMU uh best the best interview

02:33

ever oh yes actually enjoyed it he was

02:35

upset I was happy about it so we've seen

02:37

this wife was screaming in the hallway I

02:39

mean what do you expect but um they

02:41

couldn't pass the stress test I think

02:43

they lost what $300 billion ridic from

02:46

being a $330 billion company WAMU to

02:49

chase bind him for $1.9 billion so that

02:52

was the biggest bank failure and that

02:54

was obviously in 2008 cuz it was all

02:56

tied to the uh mortgage uh what was the

03:00

term that they used for mortgage well no

03:02

income no assets but the the toxic

03:05

mortgage also Mark Market the value of

03:07

the assets are dropped and suddenly but

03:10

that that was the biggest uh bank

03:12

failure in American history but all the

03:13

other biggest bank failures we've ever

03:15

seen in American history were in the

03:17

last 12 months Signature Bank um First

03:20

Republic Silicon Valley I think First

03:22

Republic had $200 billion ins solvent um

03:26

silicon Bley another 200 billion

03:28

Signature Bank 100 ion

03:31

um yeah these Banks be better be ready

03:34

to pass the stress test the first time

03:36

it was tied to mortgages now it's tied

03:37

to interest rates correct and big

03:40

commercial property yep yeah he who has

03:42

cash right now is in a is in a nice

03:46

place he who has cash you can buy a lot

03:48

of things for a discount especially now

03:51

that inflation is not going lower and by

03:54

the way Tom if all of a sudden

03:57

unemployment rates climb just so

04:00

everybody knows this is the one thing

04:02

that Jerome pow is not going to know how

04:03

to control can you go up to the

04:05

unemployment rates right now Rob just

04:07

pull up unemployment rates in the

04:09

states unemployment right now is what

04:12

three and a

04:13

half% find a chart for me find a chart

04:16

yeah so right there 3.8 creeping back up

04:19

is the bad thing yeah that's the thing

04:20

by the way if that thing you see it's

04:23

not staying flat it's kind of going up a

04:25

little bit right yeah if that thing

04:28

Vinnie goes to 4% 4 and a half% if it

04:31

goes to four and a half if it touches

04:33

five again the keyw is if we can we can

04:36

put another short alleged allegedly if

04:39

if it touches 4 and a half% yeah what

04:42

happens you know what happens what that

04:44

guy named Jerome Powell has to change

04:46

his position and actually announce rate

04:49

increase of a court of a basis point to

04:51

a half a point yes or no correct

04:53

absolutely yes if that thing touches

04:55

four and a half and the like let's just

04:57

say uh Pat in the next couple years

04:59

especially with AI taking over and a lot

05:01

of these people are going to be jobless

05:03

that is going to start going up that's

05:04

the biggest fear well no I'm just saying

05:06

it it's going to happen the number that

05:08

they want to keep it under is 5% correct

05:11

but if it goes to four four and a half

05:15

not four I don't think it happens at

05:16

four I think at four CU it's only point

05:18

two away right go five is the number

05:20

that they're trying to keep this bad boy

05:22

is the number I think if it goes to four

05:24

and a half your own power's going to

05:26

take a pat I'm itching for a bet I'm

05:28

itching for a bet cuz you're going to

05:30

lose money to me you're going to lose

05:31

money to me do you think it gets to five

05:36

no I was going to take the under by the

05:38

by the election oh no and by the way

05:40

let's keep in mind just ining for a bet

05:42

guys no I'm just saying AI I'm just

05:44

saying AI is going to take a little

05:45

while but it's still it's like you said

05:47

it's starting to creep up you're right

05:48

you're right cuz what are those people

05:49

going to and then think about what's

05:50

going to happen to society when all

05:52

those people start losing jobs and they

05:53

have no money yeah go go think about

05:55

that they're losing jobs now the numbers

05:57

behind the numbers on labor is scary Q4

06:00

the net increase in jobs was part-time

06:03

jobs more full-time jobs were lost in Q4

06:07

than were created it was a net decrease

06:10

the net jobs report in Q4 was part-time

06:12

jobs the net job increase in q1 was

06:15

part-time jobs we have lost more

06:17

full-time jobs than we've created going

06:19

back to August of last year so there is

06:21

a shift that's going on in the labor

06:24

base underneath and that is the dirty

06:27

little secret behind these jobs reports

06:29

which politically driven but the FED in

06:32

all their footnotes Fred F Federal

06:35

Reserve economic data that comes out of

06:37

St Louis they're putting it in the

06:38

footnotes it's there in the footnotes

06:40

but none of the mainstream media is

06:41

talking about it we're losing full-time

06:43

jobs and replacing it with parttime jobs

06:46

McDonald's as we said on the last

06:48

podcast had a tough earnings report and

06:50

then warned everybody and by the way the

06:52

full impact of $20 minimum wage in

06:54

Select Market is going to hit me hard in

06:57

Q2 Tom what was the Fred thing Federal

07:00

Reserve economic data out of St Louis

07:01

you can just look it up it's called Fred

07:03

you go Fred data and Tom let me tell you

07:06

something you're like Right Said Fred

07:08

your stats are too

07:09

sexy this is it this is Fred it's a

07:12

public website by our federal government

07:15

and you would think that they would be

07:16

hiding in it but the footnotes are clear

07:19

to sex guys you guys were asking for the

07:20

shirts it's officially here the other

07:22

day I take Dylan to a practice I've

07:25

never been to to a facility I've never

07:27

been to and I'm walking in three fathers

07:30

are wearing the value Tim and future

07:31

looks bright out I'm like you got to be

07:33

kidding me it was the sickest thing to

07:36

Yo PD future looks bright they had the

07:38

hats on we all took pictures it was

07:40

fantastic we had great conversation so

07:43

the word folks to save you from getting

07:45

in trouble it's called allegedly so now

07:49

we have shirts for you to wear called

07:51

allegedly Rob if you can show these

07:53

pictures and you can we were going to

07:54

announce this next week but they're now

07:56

here for you to order allegedly you can

07:59

buy and black with white and on the back

08:01

of it if you can show the back of the

08:02

shirt Rob the back of the shirt zoom in

08:04

a little bit says future looks bright so

08:07

in the front you can buy that with red

08:09

uh you can buy it in Black go to the red

08:11

one so they can see the difference and

08:12

you can also buy it in white with black

08:15

like and listen go to work go to the gym

08:17

wear a shirt allegedly allegedly

08:19

allegedly allegedly you can use the word

08:21

allegedly on everything to protect

08:23

yourself it's the number one uh

08:26

Insurance word in communication today

08:28

being used by everybody so here's what

08:30

we're doing today um for the allegedly

08:33

shirts for anybody that goes and orders

08:35

the first 100 that ordered the allegedly

08:38

shirt with a future looks bride hat will

08:42

get a future looks bride shirt and a

08:44

value tment pin sent over to you so you

08:47

order an allegedly shirt with a future

08:49

looks bright hat you get a future looks

08:50

bride shirt and a value tainment pin

08:53

being sent over your way go to VT

08:55

merch.com to place the order again VT

08:58

merch.com

09:00

to place the order is there a code for

09:01

Rob or no no I just put the link in the

09:04

chat to the allegedly share put

09:05

everything in your car and then we'll

09:06

take care so people that are listening

09:07

to this on Spotify or apple what do they

09:09

do how do they do it uh it'll be in the

09:11

description for Spotify as well so you

09:13

put in the description Spotify as well

09:15

fantastic okay go support the gear guys

09:17

we want a million people in America

09:18

wearing future looks bright gear walking

09:20

around telling everybody that the future

09:22

looks bright because we believe it does

09:24

so if you like this clip and you want to

09:25

watch another one click right here and

09:26

if you want to watch the entire podcast

09:29

click right here

09:32

[Music]

Rate This

5.0 / 5 (0 votes)

Related Tags
Bank FailuresCommercial Real EstateInterest RatesEconomic RisksFitch RatingsClaris GroupFinancial StressBank Stress TestAsset ManagementEconomic ForecastUnemployment RateLabor Market ShiftInflation ImpactAI Disruption