These regional banks could be in for consolidation as failure risks rise again
Investing.com — Just as the market was beginning to think bank failures were a thing of the past, a full year after the Silicon Valley Bank collapse, issues with New York Community Bancorp (NYSE:NYCB) last week raised the alarm that a new slew of problems for the smaller players could be percolating underneath the surface.
As persistently high rates keep pressuring regional banks, and as the Fed prepares to cease the Bank Term Funding Program , which provided a much-needed lifeline for the industry last year, experts are increasingly thinking we could be in for an uptick in consolidations.
In fact, Fed Chair Jerome Powell himself said last week that “there will be bank failures,” adding that, “it’s more smaller and medium-sized banks that have these issues.”
The issues referred to by the Fed's chairman are the heightened risks associated to commercial real estate (CRE) losses. As REITs such as Alexandria Real Estate Equities (NYSE:ARE), Boston Properties (NYSE:BXP), Kilroy Realty (NYSE:KRC), and Vornado Realty Trust (NYSE:VNO), which compose an important part of many regional banks’ asset and loan portfolios, have trended lower over the last few months, pressure on regional banks' balance sheets has been on the rise.
“The risk is most pronounced with small/regional banks since they hold ~70% of CRE loans across the banking system,” explains Andrei Belov, Chief Investment Officer at Shade Tree Advisor. “There are over $1 trillion of CRE loans projected to mature in the next couple of years,” he adds.
Vineer Bhansali, Founder and CIO of Long Tail Alpha and former head of Quantitative Portfolios at PIMCO, believes that the current setup will lead to consolidation within the industry. “Due to an inverted yield curve,
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