A lot here but a must read...

A few comments on New York Community Bank and CRE. With Janet Yellen and the federal government now implicitly guaranteeing all uninsured deposits as after all, if they bailed out a bunch of venture capitalists and their portfolio companies, are they not going to bail out others, it takes the drama out of these stressed bank balance sheet situations when looking big picture. The NYCB's, definitely somewhat self inflicted, that are out there will be dealt with via the shareholders taking pain and maybe even some bondholders. And with the slow moving train wreck that is commercial real estate if one is overlevered and has debt coming due this year or next, there will be more small bank trouble. But, there is nothing systemic I believe. It is more about the viability of some over stretched banks and a multi year process of working through CRE pain. 

The other issue we face from challenges with mostly regional banks is the reduced credit being loaned out. In nominal terms, US GDP grew by about $1.5 Trillion in 2023. However, the amount of C&I loans outstanding shrunk by almost $40b. Could this be a form of a credit crunch? Or if one doesn't want to use those words, credit tightness? Or just less demand for loans? The CFO of Bank America spoke yesterday at the RBC conference and said this on loan demand from both the consumer and commercial side, "Well, it was a little slower than we would have liked last year. Normally you think GDP plus and you hope for a good GDP number and you hope for a lot of loan growth and was just a little quieter last year...It's less about us extending commitments to clients, it's more about clients finding it less interesting to borrow when the base rate is now at 5% plus...That's continuing a little bit. I'd say loan growth this first quarter, we're off to a slowish start." That said by him, many small businesses are likely facing tougher loan officers at smaller banks where they might have some demand but see little supply. 

Also of note was this from the NY region in yesterday's Beige Book: "Activity in the region's finance sector remained sluggish. Small to medium sized banks in the region reported ongoing declines in loan demand and weaker financing activity. Banking contacts also indicated that credit standards tightened, particularly for business loans and commercial mortgages. While deposit rates held steady, loan spreads narrowed, and delinquencies continued to rise."

From Philly region: "Banks and business clients agreed that higher interest rates had lowered demand for loans, while tighter access to credit had lowered the potential supply."

From Richmond: "Financial institutions continued to report a modest softening of demand across all loan types. Higher interest rates and continued uncertainty with the overall economy continued to be the reasons noted for this softening."

From Atlanta: "Lending at Sixth District financial institutions flattened since the previous report, given tighter underwriting standards and weaker demand for loans, including commercial real estate, commercial and industrial, and consumer loans. Multifamily is the only portfolio segment that experienced any notable uptick in growth."

Now on commercial real estate, listening to Powell and others, one would think this is just an office pain point. While structurally that is true for a building that is not Class A, it is also very much a balance sheet issue for ANY piece real estate. As I've laid out the math a few times before, you could have a building (any building, multi family, industrial, student housing, etc...) that is 98% occupied but if the 3% loan priced pre 2022 is coming due this year and it's repricing at 8-9%, and there is too much debt in the capital structure, that landlord is in trouble with that property. Thus, ANY piece of real estate is vulnerable this year that has too much debt coming due. There is by the way about $900b of CRE loans maturing this year.