'Material Deterioration' in Loan Portfolios
The FDIC's Quarterly Banking Profile reveals underlying fractures from deteriorating CRE and credit card loan portfolios, running headlong into the Fed's hawkish interest rate stance.
Mobius Intel Brief:
Summary:
Fed officials and broader market media coverage remain underappreciative of underlying weakness in commercial real estate and credit card loans, particularly as the Fed has embraced a hawkish interest rate stance after May’s robust headline economic data. Supply-side commodity stakeholders should note the downstream consequences of deteriorating credit on consumer spending and business activity.
‘Material Deterioration’ in Loan Portfolios
Today’s FDIC Quarterly Banking Profile tallied reports from 4,568 FDIC-insured commercial banks and savings institutions, revealing deteriorating commercial real estate (CRE) and credit card loan portfolios in 1Q24. When combined, these portfolios represent nearly 10% of U.S. GDP.
According to the FDIC’s first-quarter report, noncurrent rates on CRE and credit card loans are at their highest since the aftermath of the 2008 financial crisis on a substantially larger pool of credit outstanding.
Noncurrent CRE Loans Indicative of Business Pressures
Total outstanding non-owner-occupied (NOO) CRE loans alone account for approximately 4.1% of U.S. GDP, reaching a record $1.17 trillion in 1Q24.
The noncurrent rate on those NOO CRE loans climbed 12 bps QoQ to 1.59%, the highest rate since Q4 2013.
Keep reading with a 7-day free trial
Subscribe to Mobius Risk Group to keep reading this post and get 7 days of free access to the full post archives.