The UK's Q4 2023 banking crisis.

[One percent]

7 minutes ago, spygirl said:

An early topic on TOS was if people taking out io mortgages knew what they were.

No ones that stupid they said.

When people say mortgage, they think pays the house off I said.

https://www.thenorthernecho.co.uk/news/23439271.newton-aycliffe-mum-suing-tsb-becoming-mortgage-prisoner/

Claire Young, 40, took out a £96,500 mortgage with Northern Rock 16-years ago to buy her two-bed end-terrace in Newton Aycliffe, County Durham.

But when the beleaguered bank collapsed, her mortgage was transferred to another lender, TSB’s Whistletree brand, where she became a ‘mortgage prisoner’ was stuck interest rates higher than the market average and found her interest rate climbing to 6.2% and her monthly repayments rising to £600.

Capital repayments on a 25y mortgage are only 30% of the monthly repayment.

Theres handy online tools to drive under peoples noses these days.

Difference between a 25y io n 25y repayment for her  would have  only going to be ~£300/m - 4k/y.

But shes sat there, done fuckall.

Even if shed kept the repayments level before Zirp, using lower or to catch up on capital repayment.

Nope.

Blown it.

 

 

 

 

I keep mentioning some wessies I know. It gets worse.  They have a quarter of a million IO mortgage, a fuckoff wankpanzer on tick, brand new, list price between 50 and 60k. They also have other bank loans and spend money like it’s going out of fashion on clothes and eating out. 
well, the plates seem to have stopped spinning as they’ve been in legal battles with neighbours both sides (did I mention they are wessies?  Thick as mince). The judge in one case as found against them and they have a 50k bill according to rumour.   Their house is now on the market.  

[spygirl]

3 minutes ago, One percent said:

I keep mentioning some wessies I know. It gets worse.  They have a quarter of a million IO mortgage, a fuckoff wankpanzer on tick, brand new, list price between 50 and 60k. They also have other bank loans and spend money like it’s going out of fashion on clothes and eating out. 
well, the plates seem to have stopped spinning as they’ve been in legal battles with neighbours both sides (did I mention they are wessies?  Thick as mince). The judge in one case as found against them and they have a 50k bill according to rumour.   Their house is now on the market.  

Again, banks says -

This product is a 30yo Interest only mortgage. The capital will need to be paid off at tte end of the term. The cost is 800/m for a 150k. Your house is at risk if you dont keep up with repayments.

For ~80% of people they only hear -

800/m 150k.

That's it.

Sure some have an inkling and plan to start paying it off a few years down line, when weve got xmas over, then the trip to Disneyland. Oh, Sharon's getting married, so well have a weekend away.

Oh, cars fucked. Get ine on PCP. Chelsea started uni, needs a top up.

Its compounding IR. Dangerous when its debt.

 

Banks lend freely when theres an asset to lend against.

 

[sancho panza]

There's a few itnerstng points to return to now I have a little more time.Aside from the rise in deterorating criedt,there's some nuance with regard to changes coming under Basel 3.

From what it looks like the Bank of International Settlements has tightened the door on some of the players who were using IRB to effecteivly boost lending beyond levels that the standardized approach would allow them to wothr eference to earlier psot.

The key issue for me reading through this report is that the stuff you really need to know is buried on page 160 of 205.There's a 12 page climate change report pages 66-78 ffs...

And then on page 160 we get the news that from year end 2021 to year end 22 mortgages in stage 2 has gone from £3459mn to £4357mn a 22% increase. This is kind of relevant because this data only covers the period post Truss from Sept to Dec 22.How many mortgages turned sour in that 3 month period.How many have turned sour in the last 3 months.It does beg the question of how badly the whole mortgage book is doing under current conditions.Worth noting that this figure is 9% of their loan book compared to 7.5% a year earlier.

ALso worth noting if they're profitibaility had increased 22% it'd be a headline in the report

I'm going to dig through previous results to try and track the growth of teh Covs balacne sheet as it clearly levers into the wind over the last few years.

It's also insightful that teh BIS saw fit to bring banks the size of Cov BS back udner some form of control.(IRB aproach allows banks to use their own data to assess risk-like 2008 never happened)

https://www.coventrybuildingsociety.co.uk/content/dam/cbs/member/pdfs/financial-results/2022/annual-report-and-accounts-2022.pdf

Page 31

Equity
The Society’s equity is predominantly made up of 138 years of retained profits in the general reserve and Additional Tier 1 (AT 1) capital. The Society made post-tax profits of £286 million in the year and total equity increased £0.5 billion to £2.9 billion, including a £29 million distribution to AT 1 capital holders and £250 million movement in the cash flow hedge reserve.

Page 63

Risk weighted capital
At 31 December 2022, and throughout the year, the Society complied in full with the capital requirements that were in force.
The CET 1 ratio decreased to 27.4% (2021: 36.2%) and the Total capital ratio to 32.7% (2021: 44.1%) . Total risk weighted assets increased by 49.2%, most of which is related to mortgages on the IRB approach. The Society continues to work towards meeting regulatory changes for IRB models that were brought in at the beginning of 2022 and is in the final stages of the development work required to address the updated requirements. Until such time as the models are approved, and in common with many other IRB institutions, the Society has agreed to hold additional RWAs that represent its best view of the change in capital requirements that will result from the new models once they are implemented. This has resulted in a 58% increase over the IRB RWAs calculated using current models.

Page 65

Capital outlook
On 30 November 2022, the PRA released CP16/22 'Implementation of the Basel 3.1 standards' – outlining its proposed approach
to the UK implementation of the Basel III finalisation package outlined by the Bank for International Settlements. The Society is in
the process of reviewing this consultation to ascertain the exact impact on capital requirements and internal processes. The main
impact for the Society is the introduction of an output floor which requires IRB firms to floor aggregate IRB outputs to a minimum of 72.5% of the corresponding RWA calculated under the revised standardised approach. This is expected to be punitive for the Society as the equivalent risk weights under the standardised approach for owner occupied and buy to let mortgages are much higher than under internal IRB models. The proposed implementation deadline set by the PRA is 2025, with the output floor being phased in over several years starting at 50%.
As a result, the Society expects to see a significant reduction in reported CET 1 measures and anticipates the need to raise
additional MREL debt.
Considerations and assumptions from the Basel 3.1 standards have been included within the Society’s financial plan, which
indicates that it will continue to have a surplus over all capital requirements, ensuring we remain financially resilient.

Edited April 7, 2023 by sancho panza

[sancho panza]

4 hours ago, spygirl said:

Again, banks says -

This product is a 30yo Interest only mortgage. The capital will need to be paid off at tte end of the term. The cost is 800/m for a 150k. Your house is at risk if you dont keep up with repayments.

For ~80% of people they only hear -

800/m 150k.

That's it.

Sure some have an inkling and plan to start paying it off a few years down line, when weve got xmas over, then the trip to Disneyland. Oh, Sharon's getting married, so well have a weekend away.

Oh, cars fucked. Get ine on PCP. Chelsea started uni, needs a top up.

Its compounding IR. Dangerous when its debt.

 

Banks lend freely when theres an asset to lend against.

 

I can vouch for thsi ref northern rock.I dealt with one squaddie mate back in the day and he asked me to look at his mrotgage and debt postion.I asked him several times 'are you sure this is repayment?' and the answer cam back 'yeah defintiely repayment'

After U go theouhg the bank accounts it clearly isn't.He'd been paying the fucking thing for five years compeletely unaware it was IO.

even worse, he didn't realsie he'd borrowed the moeny for the deposit.(NR did that).Incredible.

I dont know if that laon is still runing but virtually all these people have hjad an opportunoty to bail during the 2011-2020 phase.

People like that BTLer I know with 22 hosues going down,my sympathies are limited.If you could borrow £3mn then you could pay £200 per hpru for accounting adviceBut some of the people they sold these cruddy mortgages too had no idea.

[sancho panza]

The sittuation appears to be worse than I thought at the Cov.It seems I was reading the figures wrong forom the 2021 results

Stage 2 deteriorating credit accounts are actually up 38% yoy...... as per page 161 we've gone from £3226mn to £4466 mn in 1 year

Then we get an insight int how realistic/unrealistic the COv has been with it's modelling.There isn't a single forex component/oil price or even a basic inflation measure.It focuses on Unemployment,GDP,HPI(ffs) and the base rate

 It beggars beleif that a bank with £44bn loan book thinks the govt can run 6% ++fiscal deficits forever and a day and that therefore there's no need to model a real drop in pucblic sector spending.

 

Then we move to page 171ref LTV ratios.It's worth pointing out that the biulk of the Covs lending has been in London and the South East where the bulk of serious over valuations ahev occured.

Page 161

Page 168

 

Page 169

page 171

Edited April 7, 2023 by sancho panza

[King Penda]

6 hours ago, One percent said:

I keep mentioning some wessies I know. It gets worse.  They have a quarter of a million IO mortgage, a fuckoff wankpanzer on tick, brand new, list price between 50 and 60k. They also have other bank loans and spend money like it’s going out of fashion on clothes and eating out. 
well, the plates seem to have stopped spinning as they’ve been in legal battles with neighbours both sides (did I mention they are wessies?  Thick as mince). The judge in one case as found against them and they have a 50k bill according to rumour.   Their house is now on the market.  

Anyone with a brand new panzer wagon on tick should be very sociable to their neighbours 

[Ash4781b]

I think this will end up as a pinned thread

[Funn3r]

I can't understand why HL picked Cov BS to be their "cash ISA partner"

[PatronizingGit]

On 07/04/2023 at 18:30, spygirl said:

An early topic on TOS was if people taking out io mortgages knew what they were.

No ones that stupid they said.

When people say mortgage, they think pays the house off I said.

https://www.thenorthernecho.co.uk/news/23439271.newton-aycliffe-mum-suing-tsb-becoming-mortgage-prisoner/

Claire Young, 40, took out a £96,500 mortgage with Northern Rock 16-years ago to buy her two-bed end-terrace in Newton Aycliffe, County Durham.

But when the beleaguered bank collapsed, her mortgage was transferred to another lender, TSB’s Whistletree brand, where she became a ‘mortgage prisoner’ was stuck interest rates higher than the market average and found her interest rate climbing to 6.2% and her monthly repayments rising to £600.

Capital repayments on a 25y mortgage are only 30% of the monthly repayment.

Theres handy online tools to drive under peoples noses these days.

Difference between a 25y io n 25y repayment for her  would have  only going to be ~£300/m - 4k/y.

But shes sat there, done fuckall.

Even if shed kept the repayments level before Zirp, using lower or to catch up on capital repayment.

Nope.

Blown it.

 

 

 

 

Im constantly surprised at the number of people in my warehouse who have BTLs. One woman was complaining her monthly mortgage payment was going from £60-70! to £400 odd...guess that must be IO? 

A number seem new starters...like their BTL is now costing them and they 'have' to work. But after a number of years of landlordism & being out of the workforce, the only employment they can get is in a warehouse. 

[spygirl]

1 hour ago, PatronizingGit said:

Im constantly surprised at the number of people in my warehouse who have BTLs. One woman was complaining her monthly mortgage payment was going from £60-70! to £400 odd...guess that must be IO? 

A number seem new starters...like their BTL is now costing them and they 'have' to work. But after a number of years of landlordism & being out of the workforce, the only employment they can get is in a warehouse. 

See -

 

Again, go out with mate. See him her term?

Theyve got [10->20] flats house whatever.

IO BTL.

Skimming ~100/m 'profit'

These places will have swung to ~500/m loss.

Times that by 10, 20 30 ...

 

 

 

[spygirl]

This is commercial property.

UK commercial rent collection dips for first time in two years

Fall threatens trend of recovery in rent payment from depths of the Covid-19 pandemic

https://www.ft.com/content/3fd9f86f-44b6-445f-83d8-7eaaf8ddc187

Comment -

Are these numbers for real or are they distorted by the weird wishful thinking that exists in the commercial property world of high headline rents but ever longer rent free periods at the beginning/renewal of leases?

 

 

 

 

 

 

 

 

 

Appreciate this is a question that could only be asked by a dimwit. But could someone explain why, in the various town centres I visit, large properties formerly occupied by famous retail names (the likes of Debs, BHS, etc) are left empty and to moulder for years at a time? Don't see how that's of use to a landlord, but nothing ever seems to be done. Is it just the case an owner can't find a new occupier (in which case, why not re-package into smaller spaces?), or is that not worth an owner's while? If the latter, what does the owner expect to achieve doing seemingly nothing?

 

 

 

 

 

 

 

 

 

I guess it is not possible to repurpose commercial property for other uses without incurring a high cost. Building new somewhere else is cheaper. Just a guess.

 

 

 

 

 

 

 

 

 

Some properties could be converted into living accommodation although conversions could be expensive, it could be done and we are short of housing.

 

 

 

 

 

 

 

 

 

Technically, yes, and it should happen, if only for environmental reasons. But land owners and developers always try to maximise profits, so they will always opt for maximum return and for minimun input.

 

 

 

 

 

 

 

 

 

 

Challenges

1. In most cases it’s not feasible to convert big box retail to residential. You have to knock down and start from scratch.

2. Retail values are often still higher than residential.

3. Planning permission can be difficult, and Councils get more Council tax on retail.

 

 

 

 

 

 

 

 

 

 

The Ministry of Brexit Opportunities would be most disappointed in you. Why are you talking down innovative Brexiteers in the various town centers you visit with formerly high flying names?

 

If Elon Musk could repurpose spare office-space in Twitter HQ to literally in-house Engineering Residencies, surely the same could be done to house the homeless, support those in food and energy poverty as well as those dependent on food banks?

 

 

 

 

 

 

 

 

 

 

It is a mystery to me too. I was told that the reason these premises remain empty for so long is that in many town centres the same landlord owns a lot of buildings. To re-let at a radically reduced rent would force the landlord to (downwardly) revalue everything, resulting in an ugly drop in the companies net asset value.

The explanation doesn't make much sense to me. Surely, auditors would a require a third-party revaluation in which this would come to light anyway. But the whole sector is very opaque, as far as I can see. I certainly wouldn't want any of my savings to be tied up in town centre real estate, even now that yields seem so high.

 

 

 

 

 

 

 

 

 

Yes, I've heard that too. Certainly it's that way in our town.

 

 

 

 

 

 

 

 

 

 

Which is why all commercial property should be owned by the local authority. The parasitic property non-industry is the greatest drain on global progress.

 

 

 

 

 

 

 

 

 

State ownership rarely works out well. The incompetence easily outweighs the profit margin.

 

 

 

 

 

 

 

 

It doesn’t take long in the private sector to understand that incompetence isn’t the sole province of the state

 

 

 

 

 

 

 

 

 

Singapore?

 

 

 

 

 

 

 

(Edited)

 

 

True, but usually business go bust if they make catastrophic mistakes....unless they're banks of course.....whereas the state can usually access some kind of printing press.

 

 

 

 

 

 

 

(Edited)

 

 

sole province of the state

Quite but when a private entity is being incompetent, it goes bust.

 

When a public one is incompetent, it raises taxes - we are now paying for BBL, Test and trace, eat out to help out etc. Those who made the bad decisions are still grining on the TV.

 

Also, this:

Croydon council declares effective bankruptcy for third time in two years

https://www.theguardian.com/society/2022/nov/22/croydon-council-declares-effective-bankruptcy-for-third-time-in-two-years

 

 

 

 

 

 

 

 

 

 

Oxford city council own the covered market and drive out most tenants with high rents . They now advertise a £7m refit with funds that end up coming from tax payers. They have also been lousy custodians of commercial property . So no thank you .

I bought a pub to save it from developers. Took 3 years to get permission for one dormer window from the Planning department.

 

 

 

 

 

 

 

 

 

 

I would take a visit to industrial towns in Eastern Europe and talk to the people there. They would highly advise against state ownership like you suggest because having no incentive to spend money to maintain a building you're occupying lead to widespread devastation. They are slowly recovering from it thirty years later with private investment, but many of the town centres are still riddled with derelict uninhabitable buildings. The contrast between the two is an eye opener.

 

 

 

 

 

 

 

 

 

 

Any redevelopment costs are expensive, take a long time and normally require planning permission (which also takes time)

 

 

 

 

 

 

 

 

 

 

In many cases the former occupier will still be paying their rent - until either a break clause comes in their lease or the landlord agrees to its surrender. The only other way out is if the lessees go into liquidation. Continuing to pay the rent will make sense to the occupiers if these payments are less than the amount they were losing by continuing operations.

 

 

 

 

 

 

 

 

 

“It wouldn’t surprise me if there are some companies that are feeling the pinch on their cash flow, and are looking to manage their rent payments a bit more carefully,”

 

AKA Failing to uphold their contractual responsibilities.

 

 

 

 

 

 

 

 

 

Thank you FT for this article. It's increasingly likely that the coming financial crisis is going to start in the commercial real estate world, likely retail & office , likely leveraged up by Private Equity (who were their ultimate lenders to PE, was it the Banks?). And now it's not just a case of oversupply as in the GFC I 2008/9, but a quadruple whammy - wfh, Internet shopping, old unsuitable offices, interest rate rises, overleverage. Look at those unsold flats in China & Evergrande's fall and compare with all those crappy 1970s offices, those run down City centre shopping complexes (Portsmouth for example). And where is the money coming from to redevelop these spaces? When Government finances are so much worse than 2009, and individuals are worried about their jobs and jobs for their children? Likely it'll be a slow burn crisis as this isn't individuals desperate to sell houses to cover Lloyds Insurance losses. But how many Local authorities will go bankrupt, having lent to developers of shopping centres? The issue is that Covid and the Internet are two of the greatest and fastest social changes since the invention of the printing press, and social changes like that mean that our physical world has to change quickly. The question is in this game of pass the parcel, who owns the dodgy old buildings? Hopefully not my pension fund!

 

 

 

 

 

 

 

 

 

Not just has the physical world changed, so has the virtual crypto world.

 

An Everything Bubble, to put in a few words.

 

 

 

 

 

 

 

 

 

So what's the answer?

Cash in the bank ,

Under mattress

Property to rent

Crypto

Shares

Gold ?

How does anyone protect themselves?

 

 

 

 

 

 

 

 

 

You need loads of bake beans too :-)

 

 

 

 

 

 

 

 

 

I live North London on same Street for 50 years . It used to be all family houses ,now most homes are split into two flats with developers digging lower into basement and going into lofts to create extra space. My neighbour just put his flat up for rent £3,500 pm for 3bed (tiny rooms) .

I can't see many individuals or families affording that so it's going to be 3 couples sharing . Seems to be the routine to afford to live in London.

Previously when in boom times rising rents could be passed on to customers . Can't do that now.

Something has to give and it may have to be the landlord.

 

 

 

 

 

 

 

 

 

Well yes, if people can't afford the rent/won't pay the rent (rather move elsewhere), then rents fall.

 

Rents were rocketing because someone was paying those prices.

 

 

 

 

 

 

 

 

 

The analysis fails to mention that interest rates have risen, from almost zero, very significantly recently. Couldn’t it simply be that businesses are managing their cash much more carefully? That would seem to be an obvious reason.?

 

 

 

 

 

 

 

 

 

Rent collection hit a low of 38 per cent in June 2020 when many businesses were shuttered during lockdown, and has never fully recovered.

And it never will, because during the pandemic businesses and workers realised that they do not need physical offices nearly as much as they thought they did.

 

 

 

 

 

 

 

 

 

It'll all go terribly wrong, slowly, very slowly. I'm seeing it starting already, as people who have never worked in an office can't communicate, work in teams, nor seem to be contactable half the day.

 

 

 

 

 

 

 

 

 

Landlords collected 63 per cent of the rent due in March by the end-of-quarter due date, according to data from Remit Consulting

Let’s just assume these units are worth 63% of their last valuation, for now !

 

I find this a staggering statistic, but maybe a lot are now up to date, or the relevant sector of com.prop. and certain banks are in real difficultly.

 

 

 

 

 

 

 

(Edited)

 

 

It’s an artificial statistic. Does not include rent that is paid, but late (even if only by a single day, though I suspect that many tenants are effectively moving to a quarter in arrears).

 

 

 

 

 

 

 

 

(Edited)

 

Can anyone who works in accounting give some comparable data for other industries?

My experience of the Remit rent data is the exact due date figure is a ‘starter for ten’ which subsequently rises rapidly into the high 90% levels, usually a few % below 100%.

In other industries is 63% on the exact invoice payment date considered high or low?

 

 

 

 

 

 

 

 

 

Debts incurred by all businesses these past three years have been compounded by inflation and higher interest rates so if you are a landlord, patience is best if you don't want to lose the golden goose that gives you its eggs

 

 

 

 

 

 

 

 

 

A diminished workforce, high rent & interest rates, working from home = lower commercial rent. Instead of trying to revive the old working model, companies should be innovative.

 

 

 

 

 

 

 

 

 

Article should clarify that this is just rent payments made on the actual quarter due date (March 25th), rent payments trickle in generally over the next 14-28 that gets the collection rates up to the ~97% figure by the end of the quarter.

 

It’s not the case that commercial property has lost out on ~30% of rent the last couple quarters.

 

 

 

 

 

 

 

 

 

Commercial property provides what to a business that can be conducted from home.

 

 

 

 

 

 

 

(Edited)

 

 

I would love to see these done from home:

 

1. Politics

2. Car manufacturing

3. Farming

4. Food production

5. Commodity mining

6. Derivative clearance

7. Law courts

8. Aeroplane manyfacturing

9. Food and drink services (Mc Donalds, Costa)

10. Wholesalers of food and drink (CostCo / Macro etc.)

11. Food retailers (Tesco / Asda)

12. Suppliers of hardware (Wickes / Homebase etc.)

13. Data storage units

14. Medical and dental services

 

Need I go on? Do you think one-person IT businesses or personal services are the only sector around????

 

 

 

 

 

 

 

 

 

I would add hard work. Not seen much of that from the people I know who 'work' from home.

 

 

 

 

 

 

 

(Edited)

 

 

If your friends are lazy at home they are lazy at work too. For too many people for too long simply being at an office justified their wages in their heads. If working from home highlights the work shy as you suggest, bring it on I say.

 

 

 

 

 

 

 

 

It does highlight the workshy but unfortunately makes it extremely hard to tackle at the same time

 

 

 

 

 

 

 

 

 

That's a reasonable point. Better to say the skills required to tackle it are different IMHO. But I've worked in many places where the work shy weren't even identified by people who should be doing something about it. Although people on the ground always seemed to know who they were. I dispute a hard working employee becomes less hard working at home, because I've seen no evidence to support that. I do agree it might be harder to manage the less productive though, particularly if cracking the whip was your main means of doing that.

 

[sancho panza]

12 hours ago, spygirl said:

This is commercial property.

UK commercial rent collection dips for first time in two years

Fall threatens trend of recovery in rent payment from depths of the Covid-19 pandemic

https://www.ft.com/content/3fd9f86f-44b6-445f-83d8-7eaaf8ddc187

Comment -

Are these numbers for real or are they distorted by the weird wishful thinking that exists in the commercial property world of high headline rents but ever longer rent free periods at the beginning/renewal of leases?

 

 

 

 

 

 

 

 

 

Appreciate this is a question that could only be asked by a dimwit. But could someone explain why, in the various town centres I visit, large properties formerly occupied by famous retail names (the likes of Debs, BHS, etc) are left empty and to moulder for years at a time? Don't see how that's of use to a landlord, but nothing ever seems to be done. Is it just the case an owner can't find a new occupier (in which case, why not re-package into smaller spaces?), or is that not worth an owner's while? If the latter, what does the owner expect to achieve doing seemingly nothing?

 

 

 

 

 

 

 

 

 

I guess it is not possible to repurpose commercial property for other uses without incurring a high cost. Building new somewhere else is cheaper. Just a guess.

 

 

 

 

 

 

 

 

 

Some properties could be converted into living accommodation although conversions could be expensive, it could be done and we are short of housing.

 

 

 

 

 

 

 

 

 

Technically, yes, and it should happen, if only for environmental reasons. But land owners and developers always try to maximise profits, so they will always opt for maximum return and for minimun input.

 

 

 

 

 

 

 

 

 

 

Challenges

1. In most cases it’s not feasible to convert big box retail to residential. You have to knock down and start from scratch.

2. Retail values are often still higher than residential.

3. Planning permission can be difficult, and Councils get more Council tax on retail.

 

 

 

 

 

 

 

 

 

 

The Ministry of Brexit Opportunities would be most disappointed in you. Why are you talking down innovative Brexiteers in the various town centers you visit with formerly high flying names?

 

If Elon Musk could repurpose spare office-space in Twitter HQ to literally in-house Engineering Residencies, surely the same could be done to house the homeless, support those in food and energy poverty as well as those dependent on food banks?

 

 

 

 

 

 

 

 

 

 

It is a mystery to me too. I was told that the reason these premises remain empty for so long is that in many town centres the same landlord owns a lot of buildings. To re-let at a radically reduced rent would force the landlord to (downwardly) revalue everything, resulting in an ugly drop in the companies net asset value.

The explanation doesn't make much sense to me. Surely, auditors would a require a third-party revaluation in which this would come to light anyway. But the whole sector is very opaque, as far as I can see. I certainly wouldn't want any of my savings to be tied up in town centre real estate, even now that yields seem so high.

 

 

 

 

 

 

 

 

 

Yes, I've heard that too. Certainly it's that way in our town.

 

 

 

 

 

 

 

 

 

 

Which is why all commercial property should be owned by the local authority. The parasitic property non-industry is the greatest drain on global progress.

 

 

 

 

 

 

 

 

 

State ownership rarely works out well. The incompetence easily outweighs the profit margin.

 

 

 

 

 

 

 

 

It doesn’t take long in the private sector to understand that incompetence isn’t the sole province of the state

 

 

 

 

 

 

 

 

 

Singapore?

 

 

 

 

 

 

 

(Edited)

 

 

True, but usually business go bust if they make catastrophic mistakes....unless they're banks of course.....whereas the state can usually access some kind of printing press.

 

 

 

 

 

 

 

(Edited)

 

 

sole province of the state

Quite but when a private entity is being incompetent, it goes bust.

 

When a public one is incompetent, it raises taxes - we are now paying for BBL, Test and trace, eat out to help out etc. Those who made the bad decisions are still grining on the TV.

 

Also, this:

Croydon council declares effective bankruptcy for third time in two years

https://www.theguardian.com/society/2022/nov/22/croydon-council-declares-effective-bankruptcy-for-third-time-in-two-years

 

 

 

 

 

 

 

 

 

 

Oxford city council own the covered market and drive out most tenants with high rents . They now advertise a £7m refit with funds that end up coming from tax payers. They have also been lousy custodians of commercial property . So no thank you .

I bought a pub to save it from developers. Took 3 years to get permission for one dormer window from the Planning department.

 

 

 

 

 

 

 

 

 

 

I would take a visit to industrial towns in Eastern Europe and talk to the people there. They would highly advise against state ownership like you suggest because having no incentive to spend money to maintain a building you're occupying lead to widespread devastation. They are slowly recovering from it thirty years later with private investment, but many of the town centres are still riddled with derelict uninhabitable buildings. The contrast between the two is an eye opener.

 

 

 

 

 

 

 

 

 

 

Any redevelopment costs are expensive, take a long time and normally require planning permission (which also takes time)

 

 

 

 

 

 

 

 

 

 

In many cases the former occupier will still be paying their rent - until either a break clause comes in their lease or the landlord agrees to its surrender. The only other way out is if the lessees go into liquidation. Continuing to pay the rent will make sense to the occupiers if these payments are less than the amount they were losing by continuing operations.

 

 

 

 

 

 

 

 

 

“It wouldn’t surprise me if there are some companies that are feeling the pinch on their cash flow, and are looking to manage their rent payments a bit more carefully,”

 

AKA Failing to uphold their contractual responsibilities.

 

 

 

 

 

 

 

 

 

Thank you FT for this article. It's increasingly likely that the coming financial crisis is going to start in the commercial real estate world, likely retail & office , likely leveraged up by Private Equity (who were their ultimate lenders to PE, was it the Banks?). And now it's not just a case of oversupply as in the GFC I 2008/9, but a quadruple whammy - wfh, Internet shopping, old unsuitable offices, interest rate rises, overleverage. Look at those unsold flats in China & Evergrande's fall and compare with all those crappy 1970s offices, those run down City centre shopping complexes (Portsmouth for example). And where is the money coming from to redevelop these spaces? When Government finances are so much worse than 2009, and individuals are worried about their jobs and jobs for their children? Likely it'll be a slow burn crisis as this isn't individuals desperate to sell houses to cover Lloyds Insurance losses. But how many Local authorities will go bankrupt, having lent to developers of shopping centres? The issue is that Covid and the Internet are two of the greatest and fastest social changes since the invention of the printing press, and social changes like that mean that our physical world has to change quickly. The question is in this game of pass the parcel, who owns the dodgy old buildings? Hopefully not my pension fund!

 

 

 

 

 

 

 

 

 

Not just has the physical world changed, so has the virtual crypto world.

 

An Everything Bubble, to put in a few words.

 

 

 

 

 

 

 

 

 

So what's the answer?

Cash in the bank ,

Under mattress

Property to rent

Crypto

Shares

Gold ?

How does anyone protect themselves?

 

 

 

 

 

 

 

 

 

You need loads of bake beans too :-)

 

 

 

 

 

 

 

 

 

I live North London on same Street for 50 years . It used to be all family houses ,now most homes are split into two flats with developers digging lower into basement and going into lofts to create extra space. My neighbour just put his flat up for rent £3,500 pm for 3bed (tiny rooms) .

I can't see many individuals or families affording that so it's going to be 3 couples sharing . Seems to be the routine to afford to live in London.

Previously when in boom times rising rents could be passed on to customers . Can't do that now.

Something has to give and it may have to be the landlord.

 

 

 

 

 

 

 

 

 

Well yes, if people can't afford the rent/won't pay the rent (rather move elsewhere), then rents fall.

 

Rents were rocketing because someone was paying those prices.

 

 

 

 

 

 

 

 

 

The analysis fails to mention that interest rates have risen, from almost zero, very significantly recently. Couldn’t it simply be that businesses are managing their cash much more carefully? That would seem to be an obvious reason.?

 

 

 

 

 

 

 

 

 

Rent collection hit a low of 38 per cent in June 2020 when many businesses were shuttered during lockdown, and has never fully recovered.

And it never will, because during the pandemic businesses and workers realised that they do not need physical offices nearly as much as they thought they did.

 

 

 

 

 

 

 

 

 

It'll all go terribly wrong, slowly, very slowly. I'm seeing it starting already, as people who have never worked in an office can't communicate, work in teams, nor seem to be contactable half the day.

 

 

 

 

 

 

 

 

 

Landlords collected 63 per cent of the rent due in March by the end-of-quarter due date, according to data from Remit Consulting

Let’s just assume these units are worth 63% of their last valuation, for now !

 

I find this a staggering statistic, but maybe a lot are now up to date, or the relevant sector of com.prop. and certain banks are in real difficultly.

 

 

 

 

 

 

 

(Edited)

 

 

It’s an artificial statistic. Does not include rent that is paid, but late (even if only by a single day, though I suspect that many tenants are effectively moving to a quarter in arrears).

 

 

 

 

 

 

 

 

(Edited)

 

Can anyone who works in accounting give some comparable data for other industries?

My experience of the Remit rent data is the exact due date figure is a ‘starter for ten’ which subsequently rises rapidly into the high 90% levels, usually a few % below 100%.

In other industries is 63% on the exact invoice payment date considered high or low?

 

 

 

 

 

 

 

 

 

Debts incurred by all businesses these past three years have been compounded by inflation and higher interest rates so if you are a landlord, patience is best if you don't want to lose the golden goose that gives you its eggs

 

 

 

 

 

 

 

 

 

A diminished workforce, high rent & interest rates, working from home = lower commercial rent. Instead of trying to revive the old working model, companies should be innovative.

 

 

 

 

 

 

 

 

 

Article should clarify that this is just rent payments made on the actual quarter due date (March 25th), rent payments trickle in generally over the next 14-28 that gets the collection rates up to the ~97% figure by the end of the quarter.

 

It’s not the case that commercial property has lost out on ~30% of rent the last couple quarters.

 

 

 

 

 

 

 

 

 

Commercial property provides what to a business that can be conducted from home.

 

 

 

 

 

 

 

(Edited)

 

 

I would love to see these done from home:

 

1. Politics

2. Car manufacturing

3. Farming

4. Food production

5. Commodity mining

6. Derivative clearance

7. Law courts

8. Aeroplane manyfacturing

9. Food and drink services (Mc Donalds, Costa)

10. Wholesalers of food and drink (CostCo / Macro etc.)

11. Food retailers (Tesco / Asda)

12. Suppliers of hardware (Wickes / Homebase etc.)

13. Data storage units

14. Medical and dental services

 

Need I go on? Do you think one-person IT businesses or personal services are the only sector around????

 

 

 

 

 

 

 

 

 

I would add hard work. Not seen much of that from the people I know who 'work' from home.

 

 

 

 

 

 

 

(Edited)

 

 

If your friends are lazy at home they are lazy at work too. For too many people for too long simply being at an office justified their wages in their heads. If working from home highlights the work shy as you suggest, bring it on I say.

 

 

 

 

 

 

 

 

It does highlight the workshy but unfortunately makes it extremely hard to tackle at the same time

 

 

 

 

 

 

 

 

 

That's a reasonable point. Better to say the skills required to tackle it are different IMHO. But I've worked in many places where the work shy weren't even identified by people who should be doing something about it. Although people on the ground always seemed to know who they were. I dispute a hard working employee becomes less hard working at home, because I've seen no evidence to support that. I do agree it might be harder to manage the less productive though, particularly if cracking the whip was your main means of doing that.

 

Funny you should emntion this.WOlf St recent psot giving an idea of teh pontetnail hair cuts we're tlaking about.QUite eye opening when you see what emoty office blocks go for

https://wolfstreet.com/2023/04/08/what-are-old-office-towers-now-worth-when-they-finally-sell-amid-record-spiking-vacancy-rates-not-much-huge-losses-everywhere/

36% loss. Private equity firm Blackstone sold two 13-story Class A office towers, the Griffin Towers, in Santa Ana, Orange County, California, for $82 million to a joint venture between Barker Pacific Group and Kingsbarn Realty Capital. The towers, built in 1987, have a vacancy rate of 24%.

Blackstone had bought the towers in 2014 for $129 million, according to the Commercial Observer yesterday. The selling price makes for a loss of 36%. And Blackstone was lucky on this deal.

In 2007, at the peak of the prior CRE bubble, the towers changed hands at $183.8 million. And in 2010, it sold again for $89.9 million. In Orange County, the office vacancy rate reached a record of 23.1% in Q1 2023, according to Savills.

 

Jingle mail. Blackstone has been dumping other office towers, including most prominently a year ago when it walked away from the mostly vacant 26-story, 621,000-square-foot, 1950-vintage property at 1740 Broadway in Midtown Manhattan to let the lenders – CMBS holders – take the remaining loss.

 

It had bought the property in 2014 for $605 million. It then borrowed $308 million against it. And by March 2022, the value of the tower had dropped so far below the loan value ($308 million) that it was better for Blackstone to let the CMBS holders to take the remaining loss, and it washed its hands off it.

 

Foreclosure sales of office towers are far worse.

100% loss. This is about as bad as it gets with office towers. The vacant, 46-story 1.4 million sf office tower, built in 1985 and formerly called “One AT&T Center,” in downtown St. Louis sold for $4.1 million in April 2022 in a foreclosure sale.

In 2006, the property had been bought for $205 million and became collateral of a $112 million mortgage, which in December 2006 was securitized into CMBS.

In 2017, after AT&T, the sole tenant, had departed and the landlord had stopped making mortgage payments, lenders – represented by the special servicer Trustees of US Bank – foreclosed on the building. The outstanding mortgage balance at the time was $107 million.

The special servicer finally sold the tower in April 2022 for $4.1 million to New York-based developer SomeraRoad. But all of the proceeds from the sale were eaten up by special servicing fees and liquidation expenses of $4.25 million, according to Trepp, which tracks CMBS. It was a classic 100% total wipeout for CMBS holders.

 

[sancho panza]

Onto the Yorkshire-comments to follow tmrw.

https://www.ybs.co.uk/documents/100493/734147/Annual+Report+and+Accounts+2022.pdf/dcd38bc1-d68b-cb6d-e8ad-961f7221880c?t=1679553455677

After many pages of ESG blurb

Page 142

Page 163

Page 202

Page 214

Page 208

Page 210

Page 212

 

[spygirl]

9 hours ago, sancho panza said:

Onto the Yorkshire-comments to follow tmrw.

https://www.ybs.co.uk/documents/100493/734147/Annual+Report+and+Accounts+2022.pdf/dcd38bc1-d68b-cb6d-e8ad-961f7221880c?t=1679553455677

After many pages of ESG blurb

Page 142

Page 163

Page 202

Page 214

Page 208

Page 210

Page 212

 

Yorkshire BS is mental.

Want a loon IO BTL or proerdee development mortgage?

YBS is your man.

Theyve alos piled into FHLs.

Chatting, everyone whos for FHL in Whitby has the mortgager with Cumberland or Yorkshire BS.

Majority of banks got so badly brunt from FHL in the late 80s that they wont lend to the sector. At all.

[spygirl]

Itersting.

Just typing Cumberland and holiday lets has now kicked off a push from Cumberland BS on HPC.

Heres the link - 

https://www.cumberland.co.uk/business/mortgages/eligibility?action=holiday-let&gclid=CjwKCAjwitShBhA6EiwAq3RqA1PuEbJvnkizQ4PD0l-qvBo6d7HZt80tF_CKHuvEShCCQCftPrS4ThoC1WgQAvD_BwE

Its bad enough lendign to FHL n Bnbs./

To actually be puhsing it on the internet ......

 

A bit of history on CumberlandBS.

Years ago (before 2007) theyd only lend to FHL within the Lake Distict.

This was a good de-risk - LD is a very small, popular market.

However now they are lending lots of money to some total fucking loons wya way away from the LD.

 

 

[spygirl]

London office owner Great Portland defies downturn with record value of leases

Leading landlord says new buildings in West End are increasingly in demand

https://www.ft.com/content/a647b8c3-993b-4bfe-b484-342fe2e64fd9#comments-anchor

One of central London’s biggest listed landlords set a record for leases over the past year, underlining how the challenge of luring workers back to the capital is creating winners amid the property market downturn

....

Comments

"Leading landlord says new buildings in West End are increasingly in demand" and here is a photograph of Canary Wharf lol.

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Islington Pete

 

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And ironically a photo of probably the most screwed bit of London. Canary Wharf is where Clifford Chance is moving out of - because it’s staff think it is horrid.

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nobby

 

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But it’s staff are individuals working in the legal profession and some of them have an hourly rate north of 500 quid plus vat , when you are paid that much fewer places will have that much appeal

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Landlord's Burden

 

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Most of that £500 goes to rentseekers. The actual lawyers see about £100/hour minus tax. And it's a lot of tax.

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Dr Watt's Library

 

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🎻

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Landlord's Burden

 

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reply In reply to Dr Watt's Library

Also after a few years of grinding away the weeks on £500/hr one day you wake up and realise you've taken the fast track to an early middle age without doing anything worthwhile and sacrificing many of the meaningful elements of the life you had before. That's more deserving of a violin. Optimistic bright graduate in; podgy, exhausted and lonely middle ager with irreparable joint pain out.

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55 MINUTES AGO

(Edited)

 

reply In reply to Islington Pete

Reality is no one ever wanted to be in Canary Wharf

 

Tenants only went there because couldn’t get the space anywhere else; if they don’t need huge floor plates then they won’t stay

 

Now Brookfield are panic building life sciences/labs - and if they had that space today they’d let it - because tenants have no alternative - but when they do in a few years time they won’t

 

Will just be very expensive empty buildings

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Wish I had emigrated

 

2 HOURS AGO

 

The outer moat has been breached and the last few defenders have locked themselves up in the keep aka Mayfair.

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Just waiting for sunrise and J Pow to appear on horseback

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Barclays will take low £20s psf for their space (about/almost half of a prime office rent in the regions)

 

That’s massive value destruction in the wharf

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Mystery John

 

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Brexit boost for west end! Yay

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For such a sparkling update from GPE , makes you wonder why the shareprice is still touching the floorboards ?

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(Edited)

 

reply In reply to nobby

Indeed

 

Balance sheet is fine too

 

Given that Blackstone has just got an extra $60bn of capital to spend we will see a lot more REITs going private

 

If public markets won’t value real estate then can’t cry if there’s nothing (that you’d actually like to own) publicly listed in a few years

 

Like everything else - it’ll be if you want listed real estate look to the US markets

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Mister mister

 

4 HOURS AGO

 

That’s a great photo.

[sancho panza]

2 hours ago, spygirl said:

London office owner Great Portland defies downturn with record value of leases

Leading landlord says new buildings in West End are increasingly in demand

https://www.ft.com/content/a647b8c3-993b-4bfe-b484-342fe2e64fd9#comments-anchor

One of central London’s biggest listed landlords set a record for leases over the past year, underlining how the challenge of luring workers back to the capital is creating winners amid the property market downturn

....

Comments

"Leading landlord says new buildings in West End are increasingly in demand" and here is a photograph of Canary Wharf lol.

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2 HOURS AGO

 

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And ironically a photo of probably the most screwed bit of London. Canary Wharf is where Clifford Chance is moving out of - because it’s staff think it is horrid.

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nobby

 

2 HOURS AGO

 

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But it’s staff are individuals working in the legal profession and some of them have an hourly rate north of 500 quid plus vat , when you are paid that much fewer places will have that much appeal

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Most of that £500 goes to rentseekers. The actual lawyers see about £100/hour minus tax. And it's a lot of tax.

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Dr Watt's Library

 

23 MINUTES AGO

 

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Also after a few years of grinding away the weeks on £500/hr one day you wake up and realise you've taken the fast track to an early middle age without doing anything worthwhile and sacrificing many of the meaningful elements of the life you had before. That's more deserving of a violin. Optimistic bright graduate in; podgy, exhausted and lonely middle ager with irreparable joint pain out.

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(Edited)

 

reply In reply to Islington Pete

Reality is no one ever wanted to be in Canary Wharf

 

Tenants only went there because couldn’t get the space anywhere else; if they don’t need huge floor plates then they won’t stay

 

Now Brookfield are panic building life sciences/labs - and if they had that space today they’d let it - because tenants have no alternative - but when they do in a few years time they won’t

 

Will just be very expensive empty buildings

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Wish I had emigrated

 

2 HOURS AGO

 

The outer moat has been breached and the last few defenders have locked themselves up in the keep aka Mayfair.

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Just waiting for sunrise and J Pow to appear on horseback

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Barclays will take low £20s psf for their space (about/almost half of a prime office rent in the regions)

 

That’s massive value destruction in the wharf

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Brexit boost for west end! Yay

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For such a sparkling update from GPE , makes you wonder why the shareprice is still touching the floorboards ?

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1 HOUR AGO

(Edited)

 

reply In reply to nobby

Indeed

 

Balance sheet is fine too

 

Given that Blackstone has just got an extra $60bn of capital to spend we will see a lot more REITs going private

 

If public markets won’t value real estate then can’t cry if there’s nothing (that you’d actually like to own) publicly listed in a few years

 

Like everything else - it’ll be if you want listed real estate look to the US markets

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Mister mister

 

4 HOURS AGO

 

That’s a great photo.

 

Funny you should psot this up.Been meaning to put this upfrom Wolf st.Very on topic in terms of the looming issues for UK banks.Whislt there will be differences due to elverage/tax rules/geogrpahy.I would expect the UK to be facing very similar problems as the USA going forward.Posted in full,highlights mine.

Basci theme-CRE not a big enough rpoblem to tkae down the big banks but some smaller ones hugely exposed.

Intersting as well to see the rate of change in multifamily/office mving up 50% yoy.

https://wolfstreet.com/2023/04/10/banks-and-commercial-real-estate-debt-a-deep-dive-investors-and-the-government-on-the-hook-the-majority-of-cre-debt/

Deep Dive: Investors and Government on the Hook for the Majority of CRE Debt

by Wolf Richter • Apr 10, 2023 • 87 Comments

Retail CRE debt has been crappy since 2017, and banks managed without collapsing. Now Office goes to heck. Multifamily, the biggie, is following.

By Wolf Richter for WOLF STREET.

First, the US Banking landscape.

There are 9,697 domestically-chartered banks, savings associations, and federally insured credit unions in the US. Of them, 4,135 were FDIC-insured commercial banks as of December 2022, with 71,190 branches, according to the FDIC’s year-end tally. Now minus three banks, in order of collapse date: Silvergate Bank, Silicon Valley Bank, and Signature bank. , today maybe 4,132 banks.

All these banks, savings associations, and credit unions had $29 trillion in assets. Of them, the FDIC-insured banks alone had $23 trillion in assets. Of them, four held 40% of those assets:

• JP Morgan ($3.2 trillion in assets)
• BofA ($2.4 trillion in assets)
• Citibank ($1.8 trillion in assets)
• Wells Fargo ($1.7 trillion in assets).

Then there’s nothing for a long distance before we get to the fifth largest bank, US Bank, a regional bank, with $585 billion in assets. Silicon Valley Bank was the 16th largest bank at the end of 2022 with $209 billion in assets.

The 32nd largest bank had less than $100 billion in assets. The 132nd largest bank had about $10 billion in assets. The 2,050th-largest bank – the bank in the middle, or the median bank – had just $315 million in assets.

 

That’s important to understand when we talk about bank failures: If a few of these smaller banks collapse, few people outside of their community would even notice, though it could be a big blow to their community, especially in rural areas where this may be the only bank within miles.

Bank failures are kind of routine, but can spike.

As long as banks have existed, banks have failed, just like other companies have failed, even the most splendid ones. In the US, banks can’t file for bankruptcy (though their holding companies can). Failed banks are taken over by regulators and are “resolved.”  This is a much quicker process than dismembering it in bankruptcy court, and it allows for most of the deposits to be returned to the economy in short order.

So far in 2023, among the FDIC-insured banks, there have been three bank failures, if you include Silvergate, which was forced to shut down. There were no bank failures in 2021 and 2022, but four in 2020 and four in 2019.

The gray insert shows the bank failures from 2015 through 2023 so far. The massive spike in the 1980s was the Savings & Loan crisis, which led to the prosecution and quality time in the hoosegow for a bunch of bank executives. Yes, those were the good old times. By contrast, during the Financial Crisis, no one even attempted to send anyone to the hoosegow.

CRE Debt by category.

Multifamily (apartment buildings, student housing, etc.) is by far the largest category. CRE debt outstanding by CRE category as percent of total CRE debt:

• Multifamily: 44.2%
• Office: 16.7%
• Retail: 9.4%
• Industrial (warehouses, etc.): 8.0%
• Lodging: 6.7%
• Healthcare (life sciences): 2.1%
• Other: 12.9%

Some CRE debt still in good shape, others are in trouble.

The data below on special servicing rates are from Trepp, which tracks CMBS. Special servicing rates are a precursor for potential defaults for CRE mortgages that have been securitized into CMBS. We can use these special servicing rates as an indication of the trends among overall CRE mortgages.

Note that retail has been in trouble for five years, and banks have managed their way through it. Lodging has been in bad trouble since 2020, and banks have managed their way through it. Dealing with bad debts is what banks do as part of their routine.

Industrial is still in good shape, with a special servicing rate of 0.4% in March, down from 0.6% a year ago.

Retail has for years been the worst category due to the brick-and-mortar meltdown that I documented here since 2017 that took countless retailers – from the largest such as Sears and Toys-R-Us to the smallest – to bankruptcy courts. And it still is the worst category, with a special servicing rate of 11.6% in March, worse than a year ago (10.9%). Banks have been managing this issue for years without collapsing.

Lodging became a nightmare during the lockdowns and travel bans, but has been getting less worse, so to speak, with a special servicing rate of 6.3% in March, down from 10.9% a year ago.

Multifamily is now slithering into trouble, with a special servicing rate of 3.0% in March, up from 1.7% a year ago.

Office is going to heck. The special servicing rate has risen to 4.8%, up from 3.15% a year ago. Collateral values have collapsed. The issue is structural. Years of hogging office space by companies that they didn’t need and couldn’t use collided with a shift to working from home, and downsizing, and flight-to-quality that is leaving older office towers vacant. But given the size of these deals, everything is slow-moving. I discussed yesterday some of the recent deals, price cuts, and foreclosures sales, with haircuts ranging from 36% for the lucky ones to 100% for unlucky CMBS holders. Nearly all of the bag-holders were investors, not banks.

Banks’ exposure to CRE debt.

The data below is from a report by investment manager Cohen & Steers [CNS], citing data from the American Mortgage Bankers Association, the FDIC, and the Federal Reserve.

The size of CRE debt. CRE-related debts fall into different categories:

• $4.5 trillion: CRE mortgages on income-producing properties, meaning properties that are completed and have tenants – the CRE mortgages that everyone is talking about when landlords default.
• $467 billion: construction loans.
• $627 billion: owner-occupied property loans that the FDIC classifies at “commercial mortgages.”
• Plus: Revolving lines of credit, senior unsecured bonds, and warehouse facilities (extended by banks to nonbanks to temporarily fund their mortgage issuance until they can be securitized).

Banks held $1.73 trillion (38.4%) of the $4.5 trillion CRE mortgages of income producing properties. Investors and government entities held or guaranteed the remaining 61.6%, according to the Cohen & Steers analysis. In other words, $1.73 trillion in CRE debt is spread over 4,132 banks.

• Banks and thrifts: 38.4% ($1.73 trillion)
• Government-backed Agency, GSE, and MBS: 20.8%
• Life insurers: 14.7%
• CMBS, CDOs, and other ABS: 13.7%:
• Other: 12.5%

In the broader sense, including construction loans, banks hold 45% or $2.25 trillion of all CRE mortgages:

• Top 25 banks held $700 billion (14%) of CRE debt, about 4% of their total assets
• Next 110 banks (assets $10 billion to $160 billion) held $800 billion (16%) of CRE debt.
• The 4,000 smaller banks held $750 billion (15%) of total CRE debt.

Regional and smaller banks, the last two categories accounting for 4,110 banks, are relatively more exposed to CRE. On average, their CRE exposure amounts to 20% of their total assets.

But office mortgages account for 3% of their total assets, according to Cohen & Steers. So in general, it’s not going to be office CRE that will cause them trouble; office CRE is too small, though it could cause a few heavily exposed small banks to topple. Anything can.

For a bank with $1 billion in assets, CRE exposure of 20% means that the bank would sit on $200 million in CRE loans. This would be composed of all kinds of CRE loans. On average, this bank would also be exposed to office mortgages amounting to 3% of its assets, or about $30 million. This makes for a huge diversity of small local players that know their local markets.

A few small banks are hugely exposed. But a “handful” of the 4,000 small banks have exposure to CRE that exceed 50% of their assets, and if they run into CRE trouble, they may be added to the chart of failed banks above. This is called “concentration risk” in banking. It’s not good.

The top 25 banks have relatively little exposure to office loans, with office mortgages accounting for less than 1% of their total assets, according to estimates by Cohen & Steers. So with them, defaulting office CRE would cause some hits to earnings but not an existential crisis.

It’s investors that are taking the biggest hit on office mortgages – not banks.

There will be some bank failures.

We will see the number of bank failures rise. CRE debt will take down some of them. Other banks will be taken down by other factors. Credit risk, interest-rate risk, and concentration risk – it’s a bank’s job to manage them, and those that didn’t will get strung out. Banks will report crappy earnings for years. Investors have been taking big losses on CRE equity and debt already. And that will continue and get worse. Everyone will learn all over again that you can lose money in real estate.

But CRE is unlikely to lead to the next big banking crisis. It’s just not big enough for the banking sector.

 

[sancho panza]

On 11/04/2023 at 00:46, sancho panza said:

Onto the Yorkshire-comments to follow tmrw.

https://www.ybs.co.uk/documents/100493/734147/Annual+Report+and+Accounts+2022.pdf/dcd38bc1-d68b-cb6d-e8ad-961f7221880c?t=1679553455677

After many pages of ESG blurb

Page 142

Page 163

Page 202

Page 214

Page 208

Page 210

Page 212

 

Overall comments on Yorkshire-again,much like the COv,has heavy South East slant to it's retial mrotgage  book and it's CRE.I'd love to know the motives behind that thinking.

By far the most striking feature of the results is the amount of pre 2018 laons that are stage 2(deteriorating) and the pre 2009 stuff is breath taking on it's own.Very backs up the story Ive recounted recently ref the BTLer I know with 20 odd pre 2007 laons that are about to get handed back to the banks.

ALl in all, the structural weaknesses are there to see .Time will tell.

anyway,heres the detail imho

 

 

Page 142-Balnce sheet-whats interesting is the scale of teh invesments in the society's assets

from the notes,they appear to own a raft of other interests via the society.

page 163-as expected substantial exposure to UK property

Page 208-shows how they're much less exposed to BTL than the Coventry with only 15% of the book being BTL.However,they carry a disproportionate amount of FBTers and aslo,much like the COventry ,have a hugge mrotgage book bias to Londinium and the South East at 37%.............obviously the issue there being that those areas are where the largest likely losses will be in a downturn due to them having higher loan to income ratios

Aslo 24% of of laons have been to FTBers.

PAge 212-commerical lending -74% of theri commercial lending in in London and SE........???

 

Page 214-whats itneresting here is that when you look at the years before 2018,they show much higher levels of deteriroration than later years.I've reprinted below because it really shows how muxh mroe toxic those laons have been rather than more recent years.For example

2021 loans total 9260mn,295mn in stage 2 =3.2%

2009-2012 loans total 1056 mn,346mn in stage 2=33%

So maybe someone can tell me how a bank can keep expanding it's loan book as tey have when historically they've written such bad laons?

Edited April 13, 2023 by sancho panza

[sancho panza]

Woke up this morning and after stopping the two year old prodding my eye,my first thought was the realsiation that the data going back to pre 2009 with the Yorkshire was possibly the most important we've seen.

The reason for that is it provides a huge tell to where the instution is going on it's journey in a metaphorical sense.

Basically,what appears to be happening is that the Yorkshire issues a raft of loans,then over time,many of the people who do move can.That leaves the Yorkshire with a mortgage book that overall has reasonably low stage 2 and stage 3 (deterirorating/default stages) overall but if you look at ehat they get left with then,longer term it shows that they issue a fair few mortgages to people who can never leave.you could call it the Hotel California for some.

The solution over time,appears to have been to issue more and more new mortgages which bascially serves the function of covering up the historical issues with ever greater levels of new lending.I will need to dig back 10 years and have a look at their balance sheet in say 2012 or so to get a better idea.

This all works until they can't expand their mrotgage book any more from what I can see.Even up to year end 2022,the laons they were issuing only included a month or two post Kwame Kazi.

The BTLer I've been helping lately with 20 odd 2006/7 vintage 100% IO BTLs(noen with yorkshire),is a possibly an example of what you might find.These laons are deterirorating.That BTLer is still perfomring but will be within 4-6 months I suspect.

I think wholesale markets will start to sniff this soon and then these instituions could be in a world of pain.

 

 

 

2021 £295mn+£22mn/£9258mn(total laons)=3% in stage 1 or 2

2013-18- £1521mn+£69mn/£11731mn(total laons)=13% in stage 2 or stage 3

2009-12- £702mn+£346/£1055mn(total laons)=33% in either stage 2 or stage 3

pre 2009- £728mn+£106mn/£1559mn(total laons pre 2009)=46% in either stage 2 or 3

 

 

 

[spygirl]

Banks, as in create creating, regulated, back stopped by the BoE, should not do non amortisiing loans i..e loans that are not repaid back over a period of time.

Its that simple.

If you just allow banks to create credit then thats what theyll do - flood the eocnomy. with loans against existing assets - cos they are safe ....

Oh ... that means Brown miracle was notrhign more than the biggest credit bubble the UK has ever seen ....

All IO laons need movign ove to the unregaylted financial setcor, who raiwe capital to loan out.

Theres a mssive diffence between frawign down from BoE and havign to raise debt *BEFORE* lendign it out - normally about a 3% spread and v high hurdles and balls in a vice.

Ive been riducled on TOS by a few people but, aing, I thinkthe BoE wants soemthing alogn the ines of this for motgage lending -

For each 100k of house bought, the owner drops in at least 20k, the bank drops in 20k of capital and the prviate sector drops in another 20k-40k via a fixed loan (which is just a bond to cover the fixed period). The BoE will put in the last 40k.

I.e. the boE wasnt to out of being the major funder in mortgages.

There no way on earth the UK can do a Famnie MAC - the UK gov will have enough trouble shifting its own borrowign to forieners  never mind the funding housign sector too.

 

With a repayment mortgagge, not only does the capital get repdiad during th loan,. you have 12 * <mortgage term> credit checks/tests i..e you get a pretty quick signal that a loans a turd.

With IO thers one credit test/check/signal - 20/25Y down the line after making the loan.

In the case of Leeds BS, Cv BS and other small banks yhow rally did rmap up their IO lending, be it BTL or Resi, theyve got a huge wadge of laons that their model has said is OK so dont need to rasie captial sort out etc, tyat are goign to go rapdial bad all at the same time.

Theres isno fuckign way on earther that the typical Northern terrace IO BTL loan circa 2002-20015ish is goign to have the money to pay the loan, or be bale to sell the hosue to pay off the loan.

Just the extra time taking to get rid of tenant is goign to create a problem.

Tnen  thers the fact that IO BTL were *THE*( markey sicen 2002.

 

[Democorruptcy]

Loan defaults jump as interest rate rises squeeze UK borrowers

Quote

 

British lenders reported an increase in the number of loan defaults in the three months to February as rising interest rates continued to squeeze borrowers, a Bank of England survey showed on Thursday.

A net 14 per cent of lenders reported that more households and businesses missed repayments on secured loans such as mortgages. The net balance was well above the -1.4 per cent recorded in the previous quarter — the negative value pointed to a decrease in the default rate.

Excluding the onset of the pandemic, the BoE’s credit conditions survey pointed to the highest level of defaults since the financial crisis. The data did not detail the total number of defaults.

https://www.ft.com/content/aa09b5b9-f88a-4ffc-8a1c-826970dfbc73

 

 

[sancho panza]

2 hours ago, Democorruptcy said:

Loan defaults jump as interest rate rises squeeze UK borrowers

 

Interesting,going from what Im seeing eprosnally,that ties in with what I've seen.people have a few months savings to eat up then the sh1t hits the proverabila

the interims end Q3 could be where we get a better view of the growth ins stage2/3.

but i suscpet whoelsael markets will start getting a ripe whiff sometime soon.

4 hours ago, spygirl said:

There no way on earth the UK can do a Famnie MAC - the UK gov will have enough trouble shifting its own borrowign to forieners  never mind the funding housign sector too.

 

 

 

Thats it in a nutshell spy.there's no way out this time.they spunked a few generations of saivngs on the mlast bail otu and look what that achieved.

very differnt world to 08 now.

On the matter of the Yorks.did you see this section below.looks like they have a raft of businesses theyre valuinga t £35bn but still creaing only £3bn equity in the society itself...

have some of these some real dog poo lending in them?do you know/have a view?back later,got the kids all day.I'm intrigured by these numebrs in the ybs balance sheet

 

[Calcutta]

Interesting stuff...

It'd be a bit easier to follow if you'd both invest in new keyboards tho.

[One percent]

Just now, Calcutta said:

Interesting stuff...

It'd be a bit easier to follow if you'd both invest in new keyboards tho.

Ketbaords, they are ketbaords. 

[Funn3r]

9 minutes ago, Calcutta said:

Interesting stuff...

It'd be a bit easier to follow if you'd both invest in new keyboards tho.

Bit keyboardist mate