PIMCO joins chorus warning of regional bank failures

Add another voice to the chorus predicting calamity for regional banks.

John Murray, PIMCO’s head of global private commercial real estate team, warned of more regional bank failures in the offing, Bloomberg reported. Murray pointed to the banks’ “very high” concentration of troubled commercial real estate loans.

“The real wave of distress is just starting,” Murray said.

The uncertainty surrounding the Federal Reserve’s monetary policy has led to difficult decisions for property owners and their lenders, which are often banks. Large banks have been selling high-quality assets before deep losses can set in, Murray stated.

But regional banks are in a tighter spot, as their commercial real estate exposure is greater than those of large, diversified institutions that dialed back their lending following the Great Recession. Regional banks also didn’t demand extra down payments from commercial property borrowers in recent years, Murray added, so they have less cushion to weather devaluations.

After the failures last year of Silicon Valley Bank, Signature Bank and First Republic Bank, along with office-sector distress and rising interest rates, many executives and officials have been warning of trouble for regional banks.

In a hearing before the Senate Banking Committee in March, Fed chair Jerome Powell said that falling office values would harm regional banks. He called the situation “manageable,” but also said it was “a problem we’ll be working on for years” and that more bank failures were coming.

Newmark chair Howard Lutnick, speaking at The Real Deal’s annual New York Forum last month, predicted between 500 and 1,000 banks would fail in the near future.

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“You’re going to start seeing that in ’25 and ’26. Every single weekend a regional bank is going to go bye-bye,” Lutnick forecasted. “The banks that default are not the banks you know.”

Similar predictions were made by a trio of distress lenders at a live podcast at the event. Benefit Street Partners’ Michael Comparato said bank failures could number 500 or more.

“I don’t think most of the banks understand what is on their balance sheets,” he said.

— Holden Walter-Warner