Downward angle icon Downward angle icon. Jamie Dimon. Brooks Craft LLC/Corbis via Getty Images JPMorgan CEO Jamie Dimon said commercial real estate distress won't reach crisis levels. But he rejected analysts' estimates of a 70% to 80% chance of a “soft landing,” saying he sees “half of that.” He said he doesn't think regional bank problems will cause a “domino effect.”
Jamie Dimon said the woes in the U.S. commercial real estate sector are not yet a full-blown crisis and would only worsen if the U.S. falls into recession.
The CEO of JPMorgan Chase told CNBC on Monday that many property owners are able to handle the current levels of stress weighing on the market, and that rising defaults are a “normalizing process” as long as the U.S. can avoid a recession.
“Absent a recession, I think most banks will be able to get by through refinancing or recapitalization,” Dimon said at the bank's High Yield and Leveraged Finance conference in Miami. “If interest rates rise and we get a recession, you're going to have real estate problems. Some banks are going to have much worse real estate problems than others.”
As for the decline in real estate valuations, the CEO said “this is not a crisis, it's well-known,” referring to the sudden drop in the office market, with the sector facing $150 billion in mortgage maturities by the end of this year and another $300 billion in mortgage maturities by 2026.
“First of all, they lose value because of interest rates. If interest rates rise by 300 basis points, a cash-flowing asset will lose 30% in value,” he said.
Still, Dimon added that he doesn't think there is a 70-80% chance of a “soft landing” as many market commentators predict, but rather that it's only “about halfway there.”
New York Community Bank's decision to cut its dividend and report disappointing profits last month has sent a new wave of stress through regional lenders, reviving borrower concerns reminiscent of the Silicon Valley Bank collapse and worrying observers about the banks' exposure to shaky commercial real estate debt.
But Dimon said he believed the regional banks' problems were unique and should not escalate into a “whack-a-mole” scenario that would have a “domino effect” across the financial system.
“The issues you saw were specific to Silicon Valley, First Republic and New York Community Bank,” he added.