Charlie Munger warns of the vulnerability of US banks with “bad loans” as property prices fall.
TWC – Charlie Munger, the 99-year-old investor and vice chairman of Berkshire Hathaway, has issued a warning about the US commercial property market. During his interview with the Financial Times, Munger voiced his concerns regarding the vulnerability of US banks due to the presence of “bad loans”, which could become susceptible in the event of a downturn and a fall in property prices.
Although Munger said the current situation is better than the 2008 crisis, he emphasized that trouble can happen in the banking sector just like any other industry. He warned that a lot of real estate, including office buildings, shopping centres, and other properties, are in trouble, and there are a lot of agonies out there.
Munger’s warning comes as US regulators have asked banks for their best takeover offers for First Republic, a midsized US bank. The bank’s shares have plunged 90% since March, and its situation has been described as dire. Munger explained that Berkshire Hathaway, known for supporting American banks through times of turmoil, has largely stayed on the fringe of the crisis. He suggested that this restraint is due to the risks that could emerge from banks’ numerous commercial property loans.
In conclusion, Munger’s warning serves as a reminder of the vulnerability of the US commercial property market and the potential risks associated with banks’ numerous commercial property loans. Investors and stakeholders in the US banking and real estate industries should take note of these warnings and be prepared for the potential impact of a crisis.