“Shark Tank” star Kevin O’Leary said Tuesday that commercial real estate difficulties could lead to “a real run” on regional banks when interest on commercial real estate loans increases.
S&P Global downgraded Associated Banc-Corp., Comerica Inc., KeyCorp, UMB Financial Corp. and Valley National Bancorp Wednesday, while also giving two other banks a negative rating as interest rates for loans increased due to the Federal Reserve hiking interest rates to combat inflation. Moody’s, another major credit agency, announced earlier this month that ten banks had their rating lowered, Reuters reported.
“Now you’re just starting to see the chips start to fall,” O’Leary told Fox Business host Larry Kudlow. “The reading is as follows: The regionals are not yet known, they don’t know yet what their capital requirements are going to be so their loan books have closed like a turtle in a shell.”
“At the same time 40% of their balance sheets, majority of them, are in commercial real estate as you suggested. Those turn in 24 to 36 months,” O’Leary added. “They were financed at five to 6%. They will now be eight, nine, 10, 11%, depending on the risk of the building. That’s going to cause a real run again on these banks.”
Federal regulators shut down First Republic Bank early in morning of May 1 and sold it to J.P. Morgan Chase weeks after it received a $30 billion infusion from multiple lenders in order to stave off contagion following the sudden collapse of Silicon Valley Bank and Signature Bank in March.
“This gets worse before it gets better and what is it doing to small business? Killing them right now,” O’Leary said.
O’Leary noted during a March appearance on Tucker Carlson’s Fox News show that people were already moving to the larger banks due to the failures of Silicon Valley Bank and Signature Bank, and added that First Republic Bank, which saw its stock price plummet, was a “zombie bank” weeks before it was shut down.
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