(Bloomberg) — Bank of America Corp.’s Bernie Mensah and Standard Chartered Plc’s Bill Winters said the commercial real estate woes facing a number of regional US lenders likely don’t pose a systemic risk to the broader financial sector.
Many of the commercial real estate assets will probably need to be recapitalized or restructured, Mensah said at the World Governments Summit in Dubai. Bank of America’s exposure to that sector is “minor,” he said.
“I don’t see anything systemic – famous last words – in that sector, there could be a confluence of things that sort of starts a fire,” said Mensah, who leads the US banking giant’s international operations. “The US real estate sector is actually pretty sophisticated, it’s had its booms and its busts.”
US banks are well positioned to withstand any tremors in the commercial real estate market because they’re sitting on far more capital than they were before the last financial crisis, said Winters, who’s chief executive officer at Standard Chartered.
“The market in the US is tough,” Winters said in an interview from the sidelines of the conference. “There will be losses for sure. There are losses already, we have seen them in the US. But I think it’s all very manageable.”
Their comments come as investors’ concerns about commercial property values have intensified in recent weeks after New York Community Bancorp slashed its payouts to shareholders and stockpiled reserves to cover troubled loans tied to the sector. Since then, lenders in cities around the world from Frankfurt to Tokyo have signaled strains in their own portfolios.
The scrutiny started when the pandemic ushered in a new era of remote work, lowering office occupancy and fueling concern that landlords may fall behind on their debts. That was compounded by the fact that the Federal Reserve began aggressively raising benchmark interest rates in 2022, meaning properties will have to be refinanced at higher costs when existing loans come due.
There are more than $1 trillion in commercial mortgages maturing over the next two years, according to the data provider Trepp. Mensah said his firm has seen a growing number of investors interested in lending at the mezzanine level once a commercial property has been repriced and the loan-to-value ratio has improved.
–With assistance from Jenny Surane.
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