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Federal Reserve Chairman Jerome Powell thinks that many banks will fail. But the big question is - when?

Banks are under a huge stress after Feds closed the Bank Term Funding Program on March 11th, 2024 combined with the high interest rate and chance no rate cuts until next year, as I predicted at the end of the last year. What is missing from understanding the timing of banks failures is the CRE debt maturity timeline.

Trepp posted a report with quarter-by-quarter maturity chat for CMBS. Chat shows that there are 3 billion of CMBS loans maturing in Q1 of 2024, where around $10 billion is due in each of the following quarters this year. While this is only a representation of commercial securitization market dynamics, it paints the picture for a full CRE market.

So what happens at maturity? The debt has to be refinanced or paid back by the borrower.
Unlike home mortgages, whose principal is paid off over time, most commercial mortgages are interest only. That means that when the debt matures, the borrower has to refinance or pay off the principal. The issue is that the LTV (with values cut in half) and high interest rate translating to higher loan payments will not make sense for banks to refinance the loan. Therefore, this will cause significant losses or write-offs for the banks, if the borrower does not repay.

Based on that logic, the end of Q2 and beginning of Q3 is when I expect to start seeing severe bank struggles.

Let me know what you think. I am very interested in this topic and will be happy to discuss and hear your opinion.