US Banks Prepare for Losses in Rush for Commercial Property Exit - Barry G. Moss
With banks needing additional liquidity to hold onto underwater securities portfolios and also concerned over real estate loans, they are considering the sale of commercial real estate loan portfolios. The key is the discounts they need to take to sell these loans now and how these discounts will evolve over the next 6–12 months. I recently read an article published in The Financial Times, US banks prepare for losses in rush for commercial property exit, which stood out to me.
The article highlights discounts of under ten percent to potentially get certain deals done. These would be reasonable discounts for the banks to get new liquidity and begin pivoting away from real estate.
If the economy holds well, these reasonable discounts will continue, and the banks can more easily work their way through the current issues.
Another side to this is if the banks are marketing loans, they need to adjust to sales value on their books now. With Q2 close upon us this will be an area for boards and management to consider carefully. A sudden sale below book value before the Q is issued could call into question quarter-end values.
More to come as the banking industry works through some of these complex issues.
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