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Feds Weigh Greater Scrutiny of Regional Banks with High CRE Exposure
Twenty-two regional banks across the U.S. had portfolios of commercial real estate loans in late 2023 that federal regulators indicated would merit greater scrutiny, a sign more lenders may face pressure from authorities to bolster reserves, reported Bloomberg News.
A trio of regulators, including the Federal Reserve, FDIC and Office of the Comptroller of the Currency, publicly warned the industry last year to carefully assess any large exposures to debt on office buildings, retail storefronts and other commercial properties. At the time, authorities said they would pay closer attention to banks that had increased their CRE loan volume by at least 50% over the past three years.
Banks that crossed that threshold include Valley National Bancorp, WaFd Inc, and Axios Financial, reported Rich Asplund at BarChart. “Shares of those regional banks and others have declined since late January on concerns about their commercial property exposure and the prospect that regulators might force some lenders to bolster their reserves or cut dividends,” Asplund wrote.
Reuters reported that the catalyst for heightened investor scrutiny of banks’ CRE exposure was New York Community Bancorp’s fourth-quarter earnings release last month in which it reported a sizable loss due to its CRE loan exposure. The announcement precipitated a 60% decline in NYCB share prices and resulted in its credit rating being cut to junk status.
“As long as interest rates stay high, it’s hard for the banks to avoid problems with CRE loans,” short-seller William C. Martin of Raging Capital Ventures told Reuters. Martin decided to place a bet against NYCB after its Jan. 30 earnings release, which led him to believe that shares could sink further on more real estate losses.
He told Reuters that he was also short OceanFirst, and had been short Valley National, but he closed his position this month after pocketing gains. Both banks, as well as NYCB, have CRE holdings as a proportion of total risk-based capital above 300%, according to Trepp. That level of 300% may indicate a lender is exposed to significant risk of CRE concentration, Reuters reported, citing public guidelines from the FDIC.
Pictured: NYCB headquarters.
- ◦Policy/Gov't
