JPMorgan Chase CEO Jamie Dimon said on Monday (February 26) that the majority of commercial real estate owners will be able to “weather it all” through the current economic environment.
Dimon told CNBC on Monday that barring a recession, those shareholders would be able to refinance and inject more capital, Bloomberg reported.
Many property owners are already dealing with the current level of stress, and the challenges of falling valuations and rising interest rates are already known, so if the country avoids a recession, only a “portion” of the commercial real estate sector will experience problems, Dimon said.
But rising interest rates and a recession could compound commercial real estate's problems, with some banks facing bigger problems in this area than others, Dimon said in the report.
In early February, U.S. regional bank stocks experienced a significant sell-off after New York Community Bancorp (NYCB) reported challenges in its commercial real estate portfolio on January 31.
Regional banks have been under pressure due to rising borrowing costs, the rise in remote working trends and their exposure to the troubled commercial real estate sector.
NYCB reported an unexpected loss of $260 million in the fourth quarter of 2023, compared with a profit of $164 million in the same period a year ago. Bank executives blamed the loss on an unexpected rise in loan losses, particularly from loans related to office buildings.
On Feb. 7, Moody's Investment Service downgraded NYCB's credit rating to “junk,” saying the bank was grappling with “multifaceted” financial risks and governance challenges.
Another bank, PNC Financial Services Group, said in January that delinquencies, gross non-performing loans (NPLs) and net charge-offs rose in the fourth quarter, with its commercial real estate portfolio contributing significantly to the increase.
PNC Financial Services Group Inc. on Jan. 16 reported that overall, net charge-offs rose 65% in the fourth quarter compared with the third quarter.
“The CRE office portfolio continues to be the most stressed, with net charge-offs of $56 million in the fourth quarter,” Robert Q. Reilly, PNC's executive vice president and chief financial officer, said at the time.
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