Chris Whalen: Commercial Real Estate "Trainwreck” Will Hit Banking System, Consumer Credit Is Normalizing, and Interest Rate Cuts Won’t Do Much To Help Banks

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Chris Whalen of Whalen Global Advisors returns to Forward Guidance to share his outlook on the U.S. banking sector for 2024. Whalen argues that consumer and business credit is faring fine, as delinquencies are rising but from ultra-low levels. He does worry that commercial real estate (CRE) loans will continue to suffer impairment as losses are realized in 2024. Whalen notes that while the decline in long-term bond yields since early November 2023 has improved banks’ unrealized losses on held-to-maturity (HTM) securities, and interest rate cuts by the Federal Reserve will not help banks that much as their deposit costs will be slow to fall. Filmed on January 24, 2024.

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Timestamps:

(00:00) Introduction

(00:31) Troubles In Commercial Real Estate

(07:28) This Will Be A Slow-Motion Train Wreck

(11:01) Consumer Credit Is Normalizing (Delinquencies Are Rising From Very Low Levels)

(16:13) VanEck Ad

(16:57) Updated Views On Banks' Interest Rate Exposure

(24:52) The Fed Is Unlikely To Cut Interest Rates 6 Times This Year, Argues Whalen

(30:13) Fed Will Stop Quantitative Tightening Sooner Than Market Expects

(32:32) Lowest Comfortable Level of Reserves (LCLoR)

(33:49) Discount Window, Standing Repo Facility, and Reverse Repo Facility

(39:00) Medium Term, Short-Term Rates Will Fall and Yield Curve Will Normalize

(41:24) Basel III Endgame

(45:32) Mortgage Servicing Rights (MSRs) and Gain On Sale

(51:42) Net Income Will Likely Fall At Banks - "Don't Look For Roses And Sunshine"

(01:01:04) Private Credit And CLOs

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.