You know pension funds are suffering from their misplaced faith in commercial real estate, but regional banks have been hurting as well. Moody’s just downgraded six banks for their exposure to commercial real estate. Bloomberg’s Hari Govind reports:
Moody’s Ratings said at least six US regional banks with a substantial exposure to commercial real estate loans are at risk of having their debt ratings downgraded.
The long-term ratings of First Merchants Corp., F.N.B. Corp., Fulton Financial Corp., Old National Bancorp, Peapack-Gladstone Financial Corp. and WaFd were placed on review for downgrade by the ratings provider.
Regional banks with a substantial concentration in commercial real estate loans face ongoing asset quality and profitability pressures as higher-for-longer interest rates heighten longstanding risks, especially during cycle downturns, Moody’s said in separate statements.
During the low-interest-rate environment that prevailed prior to the onset of the Federal Reserve’s rate-hike cycle, many regional banks chose to build and maintain meaningful concentrations in commercial real estate, which is a “volatile asset class,” according to Moody’s. At Fulton, for example, the asset class represents 267% of tangible common equity as of March 31, Moody’s said.
Action Line: Rather than diversification and patience, the banks chose concentration in an asset class they thought would bring them instant gratification. Now they’re paying for it. When you want to talk about diversification in your investment portfolio, I’m here. In the meantime, please click here to subscribe to my free monthly Survive & Thrive letter.
