Two shocks that bring back bad memories. Less than a year after the resounding bankruptcies of three banks in the United States (Signature Bank, Silvergate and Silicon Valley Bank), at the origin of a domino effect which led to the fall of Credit Suisse, doubt seems to be returning the banking sector, or at least part of it.
First in the United States, where the New York Community Bank (NYCB) saw its stock market value drop by 55% in a few days after announcing, on January 31, a quarterly loss and a cut in its dividend, both very bad surprises for Wall Street.
Then in Europe, where Deutsche Pfandbriefbank (PBB), a German real estate loan specialist, was heavily sanctioned a week later on the bond market. On February 7, it announced that it was increasing its reserves to cover possible repayment defaults, citing “the biggest real estate crisis since the financial crisis” from 2007-2009.
“Archaic model”
In both cases, the origin of the sudden bout of distrust among investors is the same: an exposure deemed excessive to American commercial real estate – shops, warehouses and especially offices. Because this market is unable to extricate itself from the crisis caused by the sudden rise in interest rates, which increases the cost of its debt, and by the fall in demand for offices, linked mainly to the rise of teleworking .
According to the American firm JLL, the vacancy rate in office real estate reached a record level of 21% in the third quarter of 2023 in the main markets of North America, compared to less than 14% three years earlier. The damage is less significant in Europe, with 8% of offices empty.
PBB also pays a high price for the fact that, absent from the retail banking market, it essentially finances its lending activities by issuing bonds. “PBB operates on an economic model of a bank from the past, an archaic model: that of a bank extremely dependent on the markets for its financing, which was valid in an environment of very low rates but outdated today”explains Jérémie Boudinet, head of investment grade credit management at the management company La Française AM.
For NYCB, which the Moody’s rating agency downgraded on February 6 to among the risky issuers (” junk ), concern is also fueled by the prospect of seeing the tap of exceptional financing made available to the banking sector by the Federal Reserve close, on March 11, after the bankruptcies of 2023.
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