Here’s why people are still worried about regional banks and commercial real estate
This chart shows year-to-date performance for the KBW Nasdaq Bank Index BKX,
the KBW Nasdaq Regional Banking Index KRX,
and the S&P 500 SPX,
through Thursday, with dividends reinvested:
Bank stocks have taken it on the chin because of investor fears tied to the decline in market values for the institutions’ bond portfolios as interest rates have risen. This phenomenon helped lead to the failures of three prominent regional banks so far in 2023, although each of the three had a special circumstance that fed deposit flight.
For Silicon Valley Bank, it was an accelerating outflow of startup companies’ deposits that had ballooned following initial public offerings when interest rates were very low, before March 2022.
For Signature Bank of New York, a rapid decline in deposits was tied to fears over its business serving clients in the virtual currency industry.
For First Republic Bank of San Francisco depositors and investors had several concerns, including a brutal interest-rate mismatch springing from the bank’s business model of serving wealthy clients. First Republic was saddled with a large portfolio of jumbo mortgage loans, which unlike “conforming” residential loans couldn’t be sold to Fannie Mae or Freddie Ma soon after origination. The bank was stuck with fixed-rate loans with interest rates of 3.00% or lower, when the overnight federal-funds rate had been lifted to a target range of 4.75% to 5%. (The Federal Reserve raised the target range again on May 3 to 5% to 5.25%.) Any potential buyer before First Republic failed would have demanded a steep discount to take over its loan and securities portfolios. JPMorgan Chase JPM,
expects a boost to earnings from its purchase of the failed bank at a steep discount from the Federal Deposit Insurance Corp.
So what’s next for the banking industry? JPMorgan Chase CEO Jamie Dimon said regional banks were “getting near the tail end” of the disruption during a Bloomberg TV interview on Thursday.
Last week, Federal Reserve Chairman Jerome Powell said that the three failed banks “were at the heart” of the industry’s stress and that their resolution “kind of draws a line in the sand.”
Aarthi Swaminathan looks at another problem for owners of office buildings (and their lenders): rapid obsolescence.
Amid signs of slowing economic growth, what may comfort Federal Reserve policy makers trying to lower inflation provides no relief to people who have watched apartment rents rise much more quickly than their wages have risen.
Quentin Fotrell — The Moneyist — shares an update from a woman who wrote him in 2018 to ask advice about how to make use of $150,000 she had inherited. At that time, she said she expected always to be poor. Here’s how she has fared since then.
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Shares of Meta Platforms Inc. META,
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But the slight premium for Meta, when compared to the index, might be worth paying. Consensus estimates through 2025 point to a 25.4% three-year compound annual growth rate for Meta’s earnings per share from 2022 and a two-year CAGR of 20.3% from 2023. Analysts expect the S&P 500’s weighted aggregate earnings to rise at a three-year CAGR of 11.3% through 2025, with a two-year CAGR of 8.0%.
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